Bluewater Energy Services BV v Mercon Steel Structures BV & Ors

These proceedings relate to claims arising under a sub-contract (“the Contract”) made between the Claimant (“Bluewater”) and the Defendant (“Mercon”) for the fabrication of a tower based soft yoke mooring system (“SYMS”) for installation as part of the development of the Yuri Korchagin Field in the Caspian Sea.

Bluewater was a company in the Bluewater Group. Companies within that group entered into a contract with the Russian oil company, Lukoil, for the design, construction and installation of the SYMS.

Mercon in turn sub-contracted parts of the Contract work to a number of companies, including Astrakhan Shipbuilding Production Association LLC (“ASPO”), based in Astrakhan.

The SYMS consisted of various components which included the sub structure which was pre fabricated by ASPO under its subcontract with Mercon. There was then a Central Column which was a tubular section. This was manufactured by SIF, a subcontractor to Mercon based in Holland. The Central Column was delivered to Mercon for the fitting of stiffeners/trunnions before being transported to Astrakhan where it was integrated with the sub-structure. Together they formed the Jacket. Another component was the pileson which the Jacket was to be installed. These were fabricated by another subcontractor to Mercon, EEW in Rostock, Germany. The piles were also transported to Astrakhan.

A further component was the Topsides. These consisted of a number of elements such as the turntable, pig receiver deck, hose connection deck and tower. They were fabricated by Mercon at its yard in Gorinchem. The Topsides were transported in two parts from Gorinchem to ASPO’s yard and integrated there. Another component was the Yoke assemblies, the principal parts of which were the Yoke End, the Yoke Hinge body or ‘casting’ and the Yoke Hinge house or ‘housing’. These were shipped to Astrakhan together with the Crane Structure.

After tendering, a Letter of Intent for the work was provided by Bluewater and signed by Mercon in December 2006.

The Contract was made on 26 March 2007. It contained various Options, some of which in due course were exercised. Option 5 was exercised on 29 March 2007, immediately after the Contract was made, although it was not formalised into a Variation Order until VO-005 in March 2008. This Option related to the responsibility for transportation of the structure from Gorinchem to Astrakhan and Baku. VO 005 granted Mercon an extension of time to complete certain Milestones. In particular, for Milestone B4 which became Milestones B4.1, B4.2 and B4.3, the date of load out of each of three ships and which attracted Liquidated Damages, Mercon was granted an extension of time between 51 days and 122 days.

The Contract provided for part of the work to be paid for on the basis of a lump sum price, part was re-measured and part was reimbursable. There are issues as to how the Contract operates in relation to these elements of work.

The design of the SYMS underwent changes following the award of the Contract to Mercon. The most significant of these was a change in the substructure from 4 legs to 5 legs. This change was communicated to Mercon in June 2007. Mercon relies in its claim on the effect of this change. Bluewater, on the other hand says that it had little consequence for the matters in dispute as the main effect was additional steelwork which has been the subject of remeasurement and additional payment to Mercon. Also it says that such time impact as there may have been was included in Mercon’s programme when the Baseline Schedule was produced.

Initially there were delays by Bluewater in producing drawings to Mercon and Bluewater expressed concern about Mercon’s readiness to commence fabrication. Most of the components were, in fact, completed, ready for sailing, prior to the arrival of the ships.

From the middle of 2008, there were delays in the transportation of fabricated components to Astrakhan and in the release of components or equipment through the Russian customs processes. In Astrakhan Mercon relied on ASPO for assembly and integration work. There were delays in that work and also disputes between ASPO and Mercon as to payment. There were also issues with the painting of the Central Column when it arrived in Astrakhan. Bluewater notified Mercon that the coating used was rejected but Mercon said it would not remedy the coating unless Bluewater accepted liability for the defects. Bluewater issued a Notice of Default on 31 October 2008 and a Notice of Partial Termination of the Work on 11 November 2008.

Lukoil had indicated that the final load out of the structure would not occur until the summer of 2009. Under the Contract the extended date for the structure to be ‘ready for load out’ was 14 September 2008. There were delays and it was not completed by that date but it was envisaged that it would be ready for load out at the end of December 2008, subject to completion of punch list items. In the event Lukoil did not accept the structure at that date and Bluewater insisted that the structure should be complete. Mercon left the site in Astrakhan on 20 December 2008 and returned on 12 January 2009. There were issues between the parties as to the scope of the work which had to be completed by Mercon and also the extent to which it was possible to carry out certain work in the winter conditions in January 2009. Bluewater served a Notice of Default on Mercon on 23 January 2009 and this was followed by a Notice of Termination on 3 February 2009. Mercon says that Bluewater repudiated the Contract and Mercon accepted that repudiation and terminated the Contract.

The Claim Form was issued in the Commercial Court on 3 November 2009 and reissued when the Second and Third Defendants were joined on 24 June 2010 when claims were made under parent company guarantees.

There had been Dutch attachment proceedings under which Mercon obtained the equivalent of a freezing order in respect of €24m of Bluewater’s assets. Those proceedings were resolved by an agreement under which Bluewater paid €3m into an escrow account and a further €3m directly to Mercon in return for a “refund” guarantee, which would expire unless proceedings were brought in the English Courts within 9 months.

The parties were following the Dispute Resolution Procedure provided for under the Contract, with meetings up to Managing Director/Owner level but were unable to settle matters and Bluewater sent a Letter before Action on 29 October 2009, shortly before commencing these proceedings.

After Bluewater had commenced proceedings, Mercon issued the Dutch equivalent of a Statutory Demand in the Dutch courts on the basis that the €3m paid into the escrow account and that the €3m refund sum was immediately due and owing. This triggered a clause in Bluewater’s financing arrangements on the basis that Bluewater would be in default if insolvency proceedings were initiated against Bluewater. This led to Bluewater entering a further agreement with Mercon under which €9 million was released in relation to the sums in the escrow amount, the return of the bank guarantee and payment of further sums.

The Claim was transferred to the Technology and Construction Court on 29 November 2010. It relates to multiple claims arising on the final account as well as issues relating to termination and extensions of time. The pleadings are voluminous and include long and detailed schedules. The latest version of the Particulars of Claim was served on 31 January 2013, the latest version of the Defence and Counterclaim was served on 7 March 2012, the latest version of the Reply and Defence to Counterclaim was served on 25 May 2012 and a Rejoinder was served on 7 August 2012. Standard directions were given as to disclosure, witness statements and expert evidence leading to trial. The trial bundle contained over 100 lever arch files of hard copy documents and there were in addition electronic copies of over 50 further bundles. The written closing submissions ran to over 850 pages, with some of the detailed claims not being addressed but being dealt with by reference to schedules to the pleadings, witness evidence and expert reports.

I am grateful to counsel, Adam Constable QC, Camille Slow and Paul Bury on behalf of Bluewater and David Quest QC and Frances Pigott on behalf of Mercon for their helpful submissions and to the solicitors for providing and updating the well organised bundles.

There are numerous issues which the parties have been unable to settle. The main factual disputes concern the causes of delay and liability for any delay and the events leading up to termination. There are many financial claims which depend on particular issues of contractual interpretation or fact.

The issues are as follows:

Bluewater called a number of witnesses who had submitted one or more witness statements. I heard evidence from Maurice Heij who was employed by Bluewater as a logistics coordinator. He commenced work on the project in February 2008 and his main involvement was in 2008 when the various components for the SYMS were being transported from Gorinchem to Astrakhan and then to Baku. His contact with Mercon was mainly though Martin Hoep who was Mercon’s transport manager and also with Mr de Jong. He explained what documents were required to make the shipment and then explained his involvement in the three shipments. He also dealt with the VORs concerning additional costs of transport.

I then heard from Raymond Manson who acted as Bluewater’s site representative and quality control manager and was based at the ASPO yard in Astrakhan from 20 September until 15 December 2008. His main contacts at Mercon were with Erwin Van Zomeren, a structural supervisor and John Hermans who was carrying out the pipework on site. He also dealt with Jasper Wickerhoff and Timur Umerov. In his two witness statements he dealt with various aspects of welding, paint damage to the Central Column, leak testing and testing the water-tight floor, the pile sleeves, various problems during transit, support trunnions, painting, the bellows, as well as a number of NCRs. He also dealt with the position from 13 December up to and including the meetings of 6 to 7 January and 14 January 2009. He also gave some evidence of matters arising in April and May 2009.

Bluewater’s main witness was Ronald De Geus who provided four witness statements. He was employed as assistant project manager and contracts engineer by Bluewater and had some 20 years’ experience in the offshore sector. He became involved in the current project at around the beginning of September 2006 and gave evidence on all aspects of the project from the time of entering into the Contract through to termination. He responded to many of the matters contained in Mercon’s witness statements. He gave evidence over the course of three days during which other evidence was interposed.

I heard from David Knibbe who was a construction site representative for Bluewater and became involved in the project in June 2007. After working at Bluewater’s head office in the Netherlands and travelling to Gorinchem he became permanently based there from September 2007 until July 2008. From July 2008 he was mainly based at the ASPO yard in Astrakhan and was there until July 2009 with a short period in Baku. He dealt with a number of matters, including sea fastening and items on the outstanding works list.

I also heard evidence from Mr Maarten Van Aller who was Bluewater’s vice President (Projects) from 2003 until September 2009. He gave evidence by video conference from Singapore and explained his involvement in the project as the line manager for the project managers. I heard from Mr Peter Konijn, a senior engineer who had been employed by Bluewater since December 2006. From that date he became involved in the project and was present in Astrakhan for the load up of the foundation piles and substructure in July 2009. He described a number of features of the work. In particular he gave evidence on weighing. In a third statement which superseded his second statement he dealt with conversations with Mr De Jong around 4 December 2008.

I heard evidence from Robert Spelt who, through his own company, acted as an independent welding and materials consultant from April 2007. He travelled out to ASPO’s yard for a week per month to carry out inspections and report to Bluewater on the quality of welding. He dealt with all welding matters and with the disputes which have arisen with Mercon in relation to them.

Bluewater’s final witness was Sergio Herman who was employed as a project engineer on the project between May 2007 and August 2009. He worked with Mr Van Koperen, another of Bluewater’s Project Engineers. He dealt with a number of NCRs as well as transportation of the pendulum and surge dampening system.

Mercon then called a number of factual witnesses. Their main witness was Mr Ronald De Jong. He is the owner and director of PSJ Contract Support Bv, a Dutch company specialising in project and contract management for construction projects. He was engaged by Mercon in March 2008 to assist them in commercial and contractual matters in relation to this project. In this role he became project manager for Mercon. He dealt with matters from the date he joined Mercon up to and including the period in December to February 2009 leading up to termination. He produced two witness statements and gave evidence over four days with other witnesses being interposed.

I also heard from Mr Michiel Pors who joined Mercon in March 2008 with responsibility for financial matters. He gave evidence of his involvement in December 2008 and January 2009 as well as on a number of claims. I heard evidence from Mr Peter Van Den Brule who gave evidence by video conference from Singapore. He was the initial project manager on the project but left in 2008. He commented on a number of matters raised by Bluewater’s witnesses as well as matters which arose on the project prior to March 2008.

I heard evidence from Mr Jasper Wickerhoff who produced four witness statements. He was engaged by Mercon from 1 July 2008 and was initially Mercon’s project controller whose task was to help resolve Variation Order Requests. On about 8 October 2008 he took over the role of Mercon’s site construction manager at ASPO’s yard in Astrakhan. He gave detailed evidence on progress at ASPO’s yard and on the individual items in the Notice of Default. The next witness was Mr Timur Umerov. He was engaged by Mercon as a Project Engineer at ASPO’s yard in Astrakhan from early 2008. During January 2009 he was Mercon’s site representative and gave evidence of what work was being carried out in January and February 2009. He provided two witness statements.

Mr Kees Hoogenboom gave evidence. He is a welding engineer who was engaged by Mercon as the welding engineer for the project. He gave evidence of welding procedures and how Mercon dealt with the welding procedure requirements on this particular project. He produced three witness statements. Mercon’s final witness was Mr Cornelis Leenheer. He was a project engineer for Mercon in 2008 and dealt with the issue of the amount of redundant material left over from free issue steel plates provided to Mercon for the project.

For the most part the witnesses sought to provide their recollection of the events giving rise to the disputes which I have had to resolve. Because some of the witnesses had been involved in preparing the claims, their evidence tended to focus on the matters which supported the claims and I have therefore had to review contemporaneous documents to obtain a balanced view. I have set out, where relevant, the evidence I have preferred or accepted to be correct.

There were three areas which were dealt with by expert evidence: welding, delay analysis and quantum.

There is a substantial claim in relation to welding procedures and the extent to which those procedures and qualifications should be paid for under the provisions of the Contract. Bluewater instructed Mr Robert A Teale who is a welding consultant based in Texas in the United States and has a number of professional memberships and qualifications. He has some 40 years of experience of welding, inspection and nondestructive testing in the petrochemical and offshore industries worldwide. Mercon instructed Mr Alan Denney of Fairway based in the UK who similarly had some 40 years of experience, with a BSc in metallurgy, and MSc in welding technology. He is a chartered engineer and Fellow of the Welding Institute.

They produced a useful Joint Statement in which they reached a large measure of agreement. They served reports and each gave oral evidence. I found that evidence helpful in explaining the general position on welding procedures and qualification.

There was a dispute about delay and extensions of time. Bluewater instructed Mr John Illingworth, an Associate Director of Stapleton International and Head of Planning and Forensic Planning. He had some 35 years of experience in the oil, gas, power and energy sectors in planning and management functions before joining Stapleton in 2010. Mercon instructed Mr Lee Cookson who is a Partner in E C Harris LLP. He has some 30 years of construction experience in project management and is a Fellow for the Royal Institution of Chartered Surveyors.

They produced two Joint Statements in which they helpfully set out their views on the causes of delay on this project, which they elaborated in their expert reports. They provided and updated a schedule which summarised their positions. Whilst I have been assisted by the as-built information produced by Mr Cookson and have taken account of his views, as I have set out below, my conclusions have differed from his views on certain important aspects of the delay claim where I consider that the conclusions reached by Mr Illingworth better reflect the factual evidence of delay and my analysis of the impact of delayed load out Milestone C9.

There were many difficult quantum issues raised by the claims. Bluewater instructed Mr Andrew Mark Dixon, Head of Dispute Solutions at Stapleton International. He has over 30 years of quantity surveying experience on a wide range of projects including the fabrication of offshore oil and gas facilities and is a Fellow for the Royal Institution of Chartered Surveyors. Mercon instructed Mr David Simons who is head of support services at HC QS Limited. He has over 40 years of quantity surveying experience over a range of projects including offshore oil platforms and is also a Fellow for the Royal Institution of Chartered Surveyors.

Through a series of Joint Statements the quantum experts were able to narrow many of the disputes which were apparent on the pleadings. Where they were unable to reach complete agreement that was often because of issues of principle which I have had to resolve and, in these cases, they were able to provide a range of agreed figures which applied depending on my findings. They have made my task immensely easier than it might otherwise have been and I am very grateful to them for their hard work and sensible approach. I also had the benefit of hearing from them during a concurrent evidence session when they were able to explain the essence of their differing views on eight particular issues on which they disagreed. I have taken those views into account and specifically referred to some of the evidence on those issues, referred to as Issues A to H.

I now proceed to consider the issues in the case. It is convenient to start with the Issue of Termination.

This is one of the main issues in the case. Bluewater says that by 23 January 2009 Mercon was in default and that Bluewater was properly entitled to serve the Notice of Default on that date. It says that Mercon did not then take the necessary action to remedy the default and therefore Bluewater contends that it was entitled to terminate the Contract on 3 February 2009 under Clause 30 of the Contract.

Mercon on the other hand says that up until 18 December 2008 both parties had been working towards Milestone C6, the completion of integration of SYMS ready for Loadout on the basis that the SYMS would be completed by that date subject to a punch list. In turn this would then permit Bluewater to hand over the SYMS to Lukoil.

Mercon says that Lukoil did not accept the SYMS ready on 18 December 2008 and so Bluewater looked for reasons not to accept the SYMS with a punch list from Mercon. Mercon also says that Bluewater was at this time trying to find reasons for terminating Mercon and had already been in discussion with Mercon’s sub-contractor, ASPO, about taking over the sub-contract when Bluewater terminated the Contract with Mercon. Mercon says that much of the work which Bluewater then alleged in the Notice of Default was not work which Mercon had been properly instructed to carry out.

Mercon also says that work could not be properly carried out in January 2009 because, first there was the Christmas holiday which lasted until 12 January 2009 and then the winter conditions did not permit work such as painting to be carried out. In response to the Notice of Default, Mercon sent Bluewater a programme on 30 January 2009 which, Mercon says, showed that the necessary work would be carried out between 10 February 2009 and 5 March 2009 and that, in any case, was a satisfactory response to the Notice of Default so that Bluewater was not entitled to terminate the Contract on 3 February 2009. Rather Mercon says that the purported termination was a repudiatory breach of the Contract which, in turn, was accepted by Mercon on 24 February 2009 and the Contract was thereby terminated.

In response Bluewater says that in December 2008 Mercon decided to put commercial pressure on Bluewater and therefore adopted an attitude of non-cooperation. When Lukoil refused to take over the SYMS there were in fact major items of work which still had to be carried out on the SYMS and which Mercon should have carried out. Insofar as any instructions were necessary for that work Bluewater says that the instructions were given on 6 January 2009 and Mercon was then required to carry out the work. In fact, Mercon did not carry out that work because, in particular, it had failed to pay ASPO who therefore refused to carry out work until payment was made.

Bluewater therefore says that Mercon was in default on 23 January 2009 when Bluewater served the Notice of Default. Bluewater says that the response by Mercon to the Notice of default was merely to produce a programme which was an unsatisfactory response and that, in particular, under Clause 30.2 of the Contract it was a matter for Bluewater to determine whether the response was satisfactory. Bluewater was therefore entitled to terminate the Contract.

In reply, Mercon says that there was no lack of co-operation in December 2008 or January 2009. It says that work was in fact being carried out in January 2009 and that ASPO was working. In any case it says that ASPO’s performance was, unbeknownst to Mercon, being affected by discussions between ASPO and Bluewater about Bluewater taking over the sub-contract. Further Mercon says that by the end of January 2009 the financial position between Mercon and ASPO had been resolved so that Mercon could have carried out the necessary work in accordance with the programme it submitted. Mercon say that, in any case, with Milestone C9, the load-out of the integrated SYMS, being delayed until 1 June 2009 as Lukoil said it would only provide a barge for loadout at that date, the work did not need to be done sooner and, in fact, when Bluewater took over the work it was only carried out at a later date in 2009, ready for load-out.

I shall first set out the contractual provisions as to termination and as to instructions which are relevant to termination and deal with the legal issues raised on those provisions. I shall then set out the chronology of the main events leading up to termination before dealing in more detail with the particular matters of default relied on by Bluewater as justifying termination.

The relevant termination provision is contained in Clause 30 and provides as follows:

“30.1

Bluewater shall have the right by giving notice to terminate all or any part of the WORK or the CONTRACT at such time or times as BLUEWATER may consider necessary for any or all of the following issues:

(a)

To suit the convenience of BLUEWATER

(b)

Subject only to Clause 30.2 in the event of any default on the part of the

CONTRACTOR; or

(c)

…

30.2

In the event of a default on the part of the CONTACTOR and before the issue by BLUEWATER of an order of termination of all or any part of the WORK of the CONTRACT, BLUEWATER shall give notice of default to the CONTRACTOR giving the details of such default. If the CONTRACTOR upon receipt of such notice does not immediately commence and thereafter continuously proceed with action satisfactory to BLUEWATER to remedy such default BLUEWATER may issue a notice of termination in accordance with the provisions of Clause 30.1.”

It can be seen that where Bluewater seeks to terminate all of the work of the Contract under Clauses 30.1(b) and 30.2 then there were a number of steps to be complied with: (1)Bluewater must give notice of default to Mercon giving “details of such default” (“Notice of Default”);

There is an issue between the parties as to the standard to be applied under Clause 30.2 to determine whether or not action taken by Mercon is satisfactory. The phrase used is “action satisfactory to BLUEWATER”.

Bluewater submits that this is a matter which depends on the subjective view taken by Bluewater as to whether that action is satisfactory and that there is no objective reasonableness that need be imported. It submits that it is not for the courts retrospectively to superimpose its own view on what Bluewater may or may not have found to its satisfaction.

Mercon submits that the action satisfactory to Bluewater had to be objectively reasonable so that it was not a question of the subjective satisfaction of Bluewater. Insofar as it was a question of subjective satisfaction then reliance was placed on Clause 33.1 of Section 2(a) of the Contract which provides:

“Both the CONTRACTOR and BLUEWATER shall uphold the highest standards of business ethics in the performance of the CONTRACT. Honesty, fairness and integrity shall be paramount principles in the dealings between the parties.”

Mercon also relies on the Court of Appeal decision in Socimer International Bank Ltd(in liquidation) v Standard Bank London Ltd [2008] EWCA Civ 116 where it was held that a clause of the relevant contract left the valuation of assets entirely in the defendant’s hand. In deciding what standard should be applied to the defendant’s obligation to value assets, the Court of Appeal reviewed a number of cases where a decision maker was put in that decision. At 66 Rix LJ with whom Lloyd and Laws LJJ agreed said:

“It is plain from these authorities that a decision-maker's discretion will be limited, as a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality. The concern is that the discretion should not be abused. Reasonableness and unreasonableness are also concepts deployed in this context, but only in a sense analogous to Wednesburyunreasonableness, not in the sense in which that expression is used when speaking of the duty to take reasonable care, or when otherwise deploying entirely objective criteria: as for instance when there might be an implication of a term requiring the fixing of a reasonable price, or a reasonable time. In the latter class of case, the concept of reasonableness is intended to be entirely mutual and thus guided by objective criteria. Gloster J was therefore, in my judgment, right to put to Mr Millett in the passage cited at para 57 above the question whether a distinction should be made between the duty to take reasonable care and the duty not to be unreasonable in a Wednesburysense; and Mr Millett was in my judgment wrong to submit that it made no difference which test was deployed. Laws LJ in the course of argument put the matter accurately, if I may respectfully agree, when he said that pursuant to the Wednesburyrationality test, the decision remains that of the decisionmaker, whereas on entirely objective criteria of reasonableness the decision-maker becomes the court itself. A similar distinction was highlighted by Potter LJ in Horkulak [2005] ICR 402 , para 51. For the sake of convenience and clarity I will therefore use the expression “rationality” instead of Wednesbury-type reasonableness, and confine “reasonableness” to the situation where the arbiter on entirely objective criteria is the court itself.”

In my judgment, Clause 30.2 which requires that Mercon “continuously proceed with action satisfactory to BLUEWATER to remedy such default” is not one which is required to be construed by reference to an objective standard. The premise is that Mercon is in default and, in those circumstances, the action to be taken by Mercon is to be satisfactory to Bluewater on the basis of a subjective standard. I do not consider that it permits of a review after the event of whether the action was or was not objectively satisfactory. However, I agree with Mercon that there is a limitation on the ability of Bluewater to come to a decision as a decision maker. That limitation, as expressed in Socimer is a limitation by reference toconcepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality. Whilst I do not consider that this limitation depends on the presence of Clause 33.1 of Section 2(a) of the Contract, which in this respect is unpleaded, the implied limitation where a decision is left to the subjective view of one of the parties to

In this case the question of whether the action taken by Mercon was satisfactory to Bluewater is therefore a matter for the subjective view of Bluewater but is subject to the implied limitation summarised by Rix LJ in Socimer at [66].

There is an issue between the parties in relation to what is needed for there to be a proper instruction under Clause 14 of Section 2(a) of the Contract. I deal below with the further issue as to the requirement under Clauses 14.3, 14.4 and 14.7 for notice to be given by Mercon before it can make a claim to be paid or seek an extension of time.

Clause 14.1 “Right of BLUEWATER to issue instructions” provides:

“(a)

BLUEWATER has the right to issue instructions to the CONTRACTOR at any time to do any of the following:

(i)

make any revision to the WORK which may include additions…

…

(b)

On receipt of any instruction under Clause 14.1(a), the CONTRACTOR shall proceed immediately as instructed.”

Clause 14.2 deals with “VARIATIONS generally” and 14.3 then provides for the “CONTRACTOR’S Right to Request a VARIATION”. This together with Clauses 14.4 to 14.7 provides a mechanism for Mercon to request that, in relation to instructions under Clause 14.1, Bluewater should issue a Variation. Issues between the parties arising out of this mechanism are dealt with below in relation to Mercon’s claims for Variations.

Further provisions relating to the need for instructions to be in writing and the effect of an oral instruction are contained in Clause 2 of Section 2(a).

Mercon also refers to Clause 9.3 of Section 8 of the Contract, Co-ordination Procedures, which deals with Site Instructions (SI). It states:

“Site Instructions shall be submitted on a sequentially numbered SI form as indicated in Attachment 8D. The instruction shall reference the applicable documents and shall have a copy of these documents attached. Site Instructions shall be endorsed by CONTRACTOR and returned to BLUEWATER within one (1) working day after receipt.”

The Site Instruction Form at Attachment 8D contains the wording “The CONTRACTOR is hereby instructed by BLUEWATER to comply with the following:” and provides for boxes to be completed under “Issued by BLUEWATTER” and “Received by CONTRACTOR”.

The particular issue between the parties in relation to termination is whether Bluewater’s letter of 6 January 2009, responding to Mercon’s letter of 23 December 2008, contained instructions under Clause 14(a)(i). Bluewater says that, to the extent that the work in the letter of 6 January 2009 was not already part of the work which Mercon had to carry out under the Contract, as to which there are issues in any case, then the letter of 6 January 2009 was a sufficient instruction under Clause 14(a)(i).

Mercon says that up until 6 January 2009 Bluewater had issued Site Instructions in the form in Attachment 8D where these were necessary under Clause 14(a)(i). It states that during 2008 Bluewater had issued 60 separate site instructions, each one on the contractual form at Attachment 8D and, in particular, it refers to SIs 058, 059 and 060 which were issued on 18 December 2008 for the new deluge nozzle installation instruction, for removal of kick plate on pivoting platform Topsides and for drain tank pump insulation cover. Mercon says that its request in the letter of 23 December 2008 for site instructions for the items which it considered to be out-of-scope and, in particular, the installation of the Yoke Hinge and the load-testing of the winch foundation, was an appropriate request and the letter of 6 January 2009 did not provide the necessary Site Instructions.

In my judgment, Clause 14.1(a) provides a general right of Bluewater to give instructions as to the matters set out in sub-clauses (i) to (iv) covering revisions to the Work, revisions to Work already completed, acceleration of the Work or reprogramming the Work in accordance with any amendment to the Schedule of Key Dates. I do not consider that revisions to the Work can only be made by way of Site Instructions. Indeed Clause 1.1, the general introductory section to Section 8, shows that the forms are intended to assist the administration and does not indicate that these forms were intended to be mandatory even for Site Instructions.

However when the Site Instruction forms were used it would be clear that instructions were being given under Clause 14.1. If that form is not used then I consider that an instruction under Clause 14.1 could still be given but it would then have to be clear from the terms of the document giving the instruction that it was intended to be an instruction under Clause 14.1. The question then becomes one of considering whether the terms of the letter of 6 January 2009 were sufficiently clear to be Clause 14.1 instructions. The test, consistent with the principles to be applied to contracts and unilateral notices is whether, on an objective reading of the document in the light of the circumstances known to the parties at the time, it was sufficiently clear to be a Clause 14.1 instruction.

It is necessary to consider the background to the letter of 6 January 2009 and, in doing so, it is convenient to set out the chronology from September 2008 when Milestone C6 was to be completed.

In an internal Bluewater email dated 13 September 2008 from Mr Koppe to Mr Nijboer he says:

“In the beginning of this week we discovered that a number of timesheets were incorrect. Therefor [Bluewater] and [Mercon] refused to sign them.

From that moment came the reaction from ASPO, slowing down the work Supervision of ASPO told their workers that they are unable to pay their workers because Peter vd Brule from [Mercon] is not signing the timesheets.”

In an email from Mr Marisov of ASPO to Mr de Jong dated 2 October 2008 it was stated:

“You don’t have right to delay the payment of works according to the specified stages because of dissatisfaction with the completeness of any additionally provided information. We consider the deductions of payment of unpaid invoices as the rigid non-fulfilment of contract conditions.”

On 6 October 2008 Mr Marisov wrote again to Mercon stating:

“Please explain why Mercon delays in payment of invoices and makes the payment not in full volume. All issues concerning amounts under the contract should have been solved within 10 days since the date of invoice issuing. Voluntary deductions don’t conform to the contract. We should inform you that the present situation can negatively influence on the progress chart under the contract. In case you don’t fulfil your obligations under the contract we will have the same attitude towards fulfilment of our obligations under the contract, we will decrease the scope of provided services for the amount of your deductions.”

On 9 October 2008 ASPO sent a further email stating:

“It is the third time you are requested to effect full payment of invoices otherwise we will have to reduce the services proportionally to payment”

On 10 October 2008 Mr Wickerhoff reported that he had attended a meeting with ASPO to discuss invoices which he writes was “an hour and a half of heated debate.” He said in relation to advance payment for welding equipment:

“According to ASPO, this was promised by Peter in order to prevent delay. I made it clear that our financial department could not see that stated in the contract and therefore did not pay. The financial man here was able to understand this, but not the project manager because he had made an agreement with Peter. Here I promised to try to convince you to pay this. Herewith, therefore. Indeed, I think that it would be good to pay this invoice because it was promised. It would also be good for me in order to use it to generate a bit of goodwill. Although they were not very happy that I was only going to stand up for this small invoice.”

On 14 October 2008 ASPO sent a list of amounts outstanding on invoices 20-26 totalling €1.5m remaining payable, complaining of a “rigid breach of contract”.

On 16 October 2008, ASPO wrote to Bluewater to complain that “starting with September 29, 2008 Mercon Company doesn’t fulfil its obligations on payment of invoices for executed works under the contract.”

On 17 October 2008 ASPO disconnected the telephone and the internet lines at Mercon’s and Bluewater’s site office in Astrakhan on instructions from Mr Marisov. As Mr Pors informed Bluewater’s management team:

“Our site staff has informed us around 11:30 (NL-time) of the fact that ASPO has disconnected the telephone and internet lines at our and your site offices… So far, rumours are that the none [sic] acceptance of invoices from ASPO, and the resulting refusal to pay, is the cause for the present situation.”

On 31 October 2008 Bluewater issued to Mercon a notice of default and on 11 November 2008 Bluewater issued a notice of partial termination of Mercon’s scope of work in respect of the paint failure of the Central Column.

From November 2008 Bluewater was in direct discussion with ASPO about the work being carried out by Mercon and the possibility of Bluewater entering into a direct contract with ASPO if the Contract with Mercon were terminated. In an internal Bluewater email sent by Mr van Aller on 21 November 2008 on the subject of “Action points from Lukoil review”, his first point was “Investigate options to close out the Mercon contract by full termination or notice of closure.”

The minutes of a conference call between Lukoil and Bluewater on 25 November 2008 indicate that the SYMS components would be accepted by Lukoil on 18 December 2008 and that “formal handover certificates will be strictly as per Annex G of the [Bluewater] contract with… punch list completion items”.

Bluewater’s monthly report to Lukoil for November 2008 stated that Bluewater estimated that “all SYMS components were close to final completion and could be ready for handover to Lukoil (Ready for load-out at quay-side) on 17^th /18^th December 2008. However, due to delayed custom clearance of the Yoke Hinge and Crane Structure there will remain a short punch list, defining activities to be completed after customs clearance by Lukoil.”

At the end of November 2008 Bluewater and Mercon began work on finalising a punch list containing items which could be addressed post-handover.

On 4 December 2008 Mercon issued eight letters to Bluewater concerning various issues arising out of the Works. In the first letter Mercon made an application for an Extension of Time due to instructions and variations to various elements of the scope of works, including the late supply of AFC drawings. In the second letter concerning delayed load-out, Mercon made an application for an extension of time for grillage, seafastening, load-out and preparation for sail away under Milestone C9. In the third letter Mercon applied for an extension of time for late changes in design and the incorrect free issue seal for the installation of the bellows.

The fourth letter contained a request for Bluewater to “instruct Mercon formally to execute” the testing of the watertight floor. It stated: “Please instruct Mercon formally to execute this work confirming compensation of cost and awarded Extension of Time. Mercon will execute the defined test upon your instruction…”. The fifth letter contained an update on progress stating that the piping punchlist was near completion. The sixth letter was a request for an extension of time in respect of the release of materials and components from customs storage. The seventh letter was a request for an extension of time in respect of the Yoke Hinge and the final letter informed Bluewater of delay in the performance of a clash check on the cable runs.

Bluewater wrote to Lukoil on 9 December 2008 stating that it would ask for the issue of a certificate of release for transport upon the passing of any final test scheduled for 18 December 2008, noting that the SYMS would then be “completely, fabricated, finalised and ready for delivery to Lukoil”.

On 9 December 2008 Bluewater rejected Mercon’s request for an extension of time to Milestone C9.

On 10 December 2008 ASPO refused to provide Mercon with photocopy toner without payment in advance and Mr Nagel, Bluewater’s commissioning engineer, noted that: “possible cause, payment problems.”

On 10 December 2008 there was a meeting between the parties (Mr Brouwer, Mr Heij and Mr de Geus for Bluewater, Mr de Jong and Mr Pors for Mercon). The minutes of the meeting taken by Mr Brouwer states: “Dispute on VO-008: Time Impact: NIL Not acceptable to [Mercon]. [Mercon] threatens discontinuation.” The note states that the next meeting will be on 17 December 2008.

On 13 December 2008 in an internal Bluewater communication Mr Manson wrote to Mr Brouwer attaching an “action list” and suggesting that there should be a “cut off before handover and agree the OWL with Mercon. Then they can plan.”A number of items were marked “carry over”, which was evidently a reference to those items beingcarried over to be completed after handover.

In a position paper dated 16 December 2008 Mr de Geus discussed the options open to Bluewater, and both the preferred and fallback options involved Bluewater signing “a certificate of release for transport of integrated equipment and work evidencing completion of Key Milestone C6”.

On 17 December 2008, in an internal Mercon email Mr Wickerhoff wrote to Mr Leenheer and stated:

“Could you send me a copy of the rotation test procedure of the turntable, which Bluewater and RRMS signed off? Bluewater needs this report today in connection with the handover to Lukoil. I understand that previously Mercon had refused to issue this report but I am assuming that this has now been resolved. Before I present the report to Bluewater, I will also liaise with Ron about it.”

On the same day, 17 December 2008, Mr de Jong responded and stated:

“Sirs, indeed prepare before handover, i.e. ensure that this document is available, but for the time being there will be NO handover. This means look, look, but not buy and so not get! After the discussions (NL), we will decide whether to hand over. I would therefore like to leave the possibility open of saying, “Regrettably, we are not ready for handover yet.”

Lukoil did not accept the handover on 18 December 2008. On 22 December 2008 Lukoil gave 18 reasons for rejecting the structure. It stated that the “Certificate of release for transport cannot be executed to date since the following defects were identified during the acceptance of SPM fabrication work in Astrakhan.” Bluewater responded to this list on 24 December 2008.

On 18 December 2008 Bluewater says that there was a meeting attended by Mr De Jong at which Mercon attempted to exert illegitimate commercial pressure on Bluewater by refusing to carry out works without further payment. Mercon denies that Mr de Jong attended the meeting or that he acted in that way.

On 18 December 2008 Mercon produced a list of Outstanding Works to be carried out. This included: complete heat tracings, shotblasting and painting, install safety signs, install tubing between swivel and drain tank, test watertight floor, re-install bellows, install Yoke Hinge, replace bolts sheave, and load test winch.

In an internal email of 23 December 2008 to which he attached a draft letter to Bluewater dividing the work into five categories, Mr De Jong said:

“Lastly, you must get it into your heads that we are NOT completing. We are only reporting that we have achieved C6. Now we must first obtain EoT and a modification of C9 before they are able to offer to Lukoil.”

The list was circulated internally within Mercon and sent to Bluewater on 23 December 2008 with a letter which identified the following five categories and gave the works in the list the coding of 1 to 5. It then said:

“This list is split-up in the following types of activities:

(1)

Punch-list items; those elements of the original scope which formed part of the WORK at the time of agreement on the Recovery Schedule submitted in December 2007, and could have been completed on the 18th of December 2008.

(2)

Bluewater delayed activities; those elements of the original scope which formed part of the WORK at the time of agreement on the Recovery Schedule submitted in December 2007, and which could not be completed on the 18th of December 2008 due to unavailability of required materials or information to be provided by Bluewater.

(3)

Storage activities; those activities required to allow due care & custody during the storage period as instructed per Bluewater letter 1-0445-0-S001BES-MSSL- 396, dated the 29th of August 2008.

(4)

Late instructed activities; those activities which were instructed after agreement on the Recovery Schedule submitted in December 2007, which are not completed on the 18th of December 2008, and for which no Extension of Time has been received per the 18th of December 2008.

(5)

Not instructed activities; those activities of which Mercon was made aware by the Bluewater site team, which are not completed on the 18th of December 2008, and which have not been instructed per the 18th of December 2008.”

The five items in category 5 were painting of inside of buckets on top of centre column; installation of the Yoke Hinge; load testing the winch; solving the cable tray clash and painting the door of the pig receiver.

Mercon planned to and did shut down the site in Astrakhan from 20 December 2008 until 12 January 2009.

On 22 December 2008, Mr Brouwer sent an internal email noting that “the punch list has been prepared in anticipation of a formal handover that most likely will take place

In its report to Lukoil for December 2008, Bluewater said:

“Fabrication of all components in the Netherlands has been completed as well as fabrication of all components as ASPO. Only equipment delayed by the customs clearance of Lukoil still needs to be fitted and tested where required.

…

[Bluewater] invited Lukoil to attend the delivery of the EQUIPMENT (SYMS Components) at ASPO in Astrakhan and sign a CERTIFICATE OF RELEASE FOR

TRANSPORT (ready for Load Out) with a small punch list. Lukoil refused to do so.”

Mr Brouwer said in his contemporaneous internal report to Mr van Aller for week 3 of 2009 that Lukoil had refused to sign the certificate of release for transport “because of the existence of a minor punch list”. He also noted that “6 weeks duration is required to finish the works”.

On 29 December 2008, Mercon submitted a request for a Certificate of Release for Transport of the SYMS (Topsides, Crane Structure, Jacket, Plies and Yoke Hinge) to achieve Milestone C6, subject to the subsequent clearance of the specified punch list items.

On 6 January 2009 Bluewater sent a letter to Mercon responding to Mercon’s outstanding work list to complete the project. Bluewater sent a marked up list, adding items to Mercon’s list of 23 December 2008 and the request on 29 December 2008 for a certificate for Milestone C6. In particular the letter noted that Milestone C3 (Jacket and Pile pre-fabrication and pre-assembly complete) had not been completed and some items on the list related to Milestone C3. It then said:

“MERCON have neither executed nor completed major elements of the Scope of WORK related to Key Milestone C6, such as:

Bluewater also crossed out the numbering into the various categories by Mercon and said at point 4 of the letter:

“Furthermore, BLUEWATER remark that BLUEWATER cannot accept the differentiation as applied by MERCON in their letter –L-314. Instead, BLUEWATER request that MERCON duly complete the WORK without differentiation.”

On 7 January 2009 there was a meeting between Mr de Jong and Mr Pors of Mercon and Mr Brouwer, Mr de Geus and Mr Ronald van Vugt of Bluewater. The notes record that:

“Key Milestone C6 Ready Load Out

[Mercon] first agreement about the work >compensation/time agreement before continuing

Recap after interruption: proposal Grace Period

A second set of notes also record a discussion about weighing, which is “Weighing Prices in “VOLGAR” - according [Mercon]” and notes that the C6 “punchlist ([Mercon]). Will be executed”.

On 8 January 2009 Mercon sent a letter to Bluewater stating:

“Mercon requires confirmation of addition of these elements of work to the scope, confirmation of entitlement to financial compensation, entitlement of extension of time for key date C6 and agreement on the value of the referred activities, before the referred activities can be executed.”

On 13 January 2009, Mr Umerov reported that ASPO was refusing to provide Bluewater with passes to access the site. Mr Umerov’s email sets out two matters arising from his conversation with Mr Ryzkov of ASPO:

“1)

He cannot permit to [Bluewater] [guys] to be in ASPO and all [Bluewater] passes will be blocked until decision from Mr Marisov…

2)

Sea fastening suggestion for the steel plates not under translation and during today Vlad will send to us, but without invoice, as [said] to me Ryzkov agreement between Bank and ASPO concerning Mercon payments been finished in the end of last year, when your main contract been finished and for the prolongation of this agreement Bank need to have signed additional agreement between ASPO and [Mercon]. ASPO tomorrow will send concept of this agreement to [Mercon] for signing, and asked to send back as soon as possible.”

At a meeting on 14 January 2009 between Mr Brouwer, Mr Manson, Mr Knibbe and Mr de Geus for Bluewater and Mr de Jong and Mr Pors for Mercon the outstanding works were discussed. Mr de Geus’ notes record:

“[Mercon] first wants to see money and time before they carry on with the yoke hinge and other items, which, as far as they are concerned, do not fall under [Scope of Work], such as yoke hinge/paint/preservation.”

Mr Brouwer’s notes of a meeting on 14 January 2009 record: “Outstanding payments with ASPO: solved.”

On 14 January 2009 in an email from ASPO to Mr Wickerhoff it was stated:

“This additional agreement is needed for bank in order to prolong transaction certificate of this contract, otherwise we are not able to act under the terms of the contract without this agreement.”

By letter dated 15 January 2009 Bluewater stated that the discussions during the meeting on 14 January 2009 “shall prevail” concerning:

“1.

Completion Key Milestone C3 before completion of Key Milestone C6;

2.

Completion of Key Milestone C6:

2.1

Outstanding WORK (Weighing, Preservation, Testing Watertight Floor, SAT Testing Winch Foundations, Execution of NCR’s, Yoke Hinge);

2.2

Punch List Items.”

On 16 January 2009 ASPO told Bluewater that Mercon had not been paying its invoices. ASPO sent Bluewater a further list of the invoices that Mercon had not paid showing invoices in a total sum of €2.2m, some of which went back as far as 5 September 2008.

By letter dated 19 January 2009 Mercon referred to contractual scope and attached a list designating items as “1”, “2” or “3”. In relation to “1” Mercon acknowledged that works were within contract scope; “2” was designated “instruction without agreed compensation” and “3” was ‘instruction required’. Included in category 2 was “install Yoke Hinge” and “load test the winch support”.

On 19 January 2009, in an internal email Mr Umerov stated that:

“Today morning Mr Marisov invited me to his office and asked about payments news, I told, that Jasper is working on it in Holland and after that he said that he want to have today a speakerphone meeting with Ron de Jong and Willem Griffioen regarding payments. Can you please find out, this is possible or not, and if possible at what time”

On 20 January 2009 Mercon sent a letter relating to Site Instructions issued in Astrakhan. The letter stated that:

“We ask your confirmation that the referred instructions entitle [Mercon] to financial compensation and extra time for the related activities. Mercon will detail the referred cost and durations when available. The extended or additional durations will be incorporated in the Master Schedule where after our entitlement for Extension of Time will be determined.

We request your confirmation in order to allow preparation and scheduling of the associated activities.”

At a meeting on 20 January 2009 Mr de Geus noted that, in relation to each of the Yoke Hinge, the watertight floor, and the testing of the winch foundation, Mercon stated that this work was to be executed “if agreed that this is the extra work, how much and when.”

The evidence shows that apart from work to weld beads and scaffolding and, it appears, some painting, no work was being carried out in Astrakhan following the letter of 6 January 2009.

On 21 January 2009, ASPO told Bluewater that the unpaid invoices amounted to €2,600,000 and at a meeting with Bluewater on 22 January 2009 ASPO stated that, of the outstanding €2.6m, it had been paid €870,000 by Mercon.

On 23 January 2009 Bluewater sent Mercon a Notice of Default under Clause 30.2 of the Contract. It stated that:

“It is considered that MERCON is in default of its obligations under the Agreement by reason both of its failure to complete the work items identified on the OUTSTANDING WORK LIST (as amplified in the list at Annex 1, which includes work items related to key date C3 which remain to be completed notwithstanding the confirmation given by Michiel Pors and in respect of which MERCON is also in default), and by reason of its noncontractual and unjustified refusal to do so unless BLUEWATER agrees additional compensation and extra time.”

The letter contained a table identifying a number of items of Work in the Outstanding Works List for which it is said that Mercon is in default, and then stated:

“This identification is to be read together with the updated list at Annex 1 and the C3 and C6 items included therein are deemed included in the identification of the items in respect of which MERCON is in default.

This letter is intended to take effect as a Formal Notice of Default given under and in accordance with Clause 30.2 of the Agreement.

If MERCON does not immediately commence and thereafter continuously proceed with actions satisfactory to BLUEWATER to remedy the identified defaults BLUEWATER will be entitled to issue a Notice of Termination in accordance with the provisions of Clause 30.1 of the Agreement, and it will issue such a Notice if within 7 days of the date hereof MERCON has not remedied its default by completing to the satisfaction of BLUEWATER all work items related to key date C6 as set out above and as those are amplified in the updated list at Annex 1.”

There was no daily report from Mercon recording what was going on on-site and Mr Wickerhoff was in Gorinchem during this period. Mr Umerov was present at ASPO and Mr van Zomeren and Mr Van Den Oever of Mercon were on site on 24 January 2009 and then left on 25 or 26 January 2009. Mr Knibbe’s reports show some pile bead welding being carried out but this ceased on 2 February 2009.

Bluewater says that effectively nothing on site changed between 23 January 2009 and 3 February 2009 following the issue of the Notice of Default.

Mercon replied to the Notice of Default on 26 January 2009 stating that: “In fact today, the 25th of January we continue the completion of work in Astrakhan.” Mercon then sent a further response on 28 January 2009 and said that much of the work set out in the Notice of Default was not within Mercon’s contractual scope.

On 28 January 2009 ASPO stated in a conference call with Bluewater that it had ceased all work for Mercon as a result of Mercon’s failure to pay ASPO and in a letter from Bluewater to ASPO of the same date it was stated:

“Bluewater have come to know that ASPO ceased all WORK with [Mercon] due to the fact that in contradiction with an agreement reached between ASPO and [Mercon] on 23 JAN 2009, as of 26th January 2009 [Mercon] have neither issued payment nor any proof of such a transaction confirming that outstanding invoices including RFVAT, up to and including December 2008 had been paid (approx.. 2.6Mio).”

On 29 January 2009, Mr Knibbe records in his daily report: “Checked why still not more work is done by ASPO, according to [Mercon] Timur, they first need to receive outstanding payments.”

On 30 January 2009 Mercon sent Bluewater a Schedule of Completion. The covering letter said that the works would be completed within “approximately three weeks” but would not be able to start until 10 February 2009 due to issues with getting the necessary materials and manpower. The Schedule did not include the weighing of the structure.

On 3 February 2009 Bluewater issued the Notice of Termination under Clause 30.

On 11 February 2009 ASPO stated that Mercon’s debt was still at €2.6m, subject only to the payment on 3 February 2009 of approx €130,000.

On 24 February 2009 Osborne Clarke acting on behalf of Mercon wrote to Ince & Co acting on behalf of Bluewater, notifying them that Mercon had accepted Bluewater’s repudiation of the Contract.

On the basis of that chronology it is now necessary to consider whether Bluewater was entitled to terminate the Contract based on the various items of work which were referred to in the Notice of Default on 23 January 2009 and which Bluewater relies on to justify the Notice of Termination on 3 February 2009.

There is a preliminary matter which I must determine before I consider the individual matters. Bluewater submits that if Mercon is in default in relation to one of the items in the Notice of Default then that is sufficient to justify the termination under Clause 30. Mercon does not agree with this and submits that the relevant obligation is the obligation to deliver Milestone C6 (or C3) by a particular date and the default would be a failure to deliver that Milestone by the relevant date. If, Mercon says, the reason why the Milestone is incomplete is because it was prevented from completing Milestone C6 by a matter which was Bluewater’s obligation then it would not be in default. Mercon refers to the Notice of Default and, in particular to the passage where it says “MERCON is in default of its obligations under the Agreement by reason … of its failure to complete the work items identified on the OUTSTANDING WORK LIST (as amplified in the list at Annex 1…” Mercon submits that the default is a failure to complete Milestone C3 and C6 items.

Mercon also refers to this further passage in the Notice of Default:

“If MERCON does not immediately commence and thereafter continuously proceed with actions satisfactory to BLUEWATER to remedy the identified defaults BLUEWATER will be entitled to issue a Notice of Termination… if … MERCON has not remedied its default by completing to the satisfaction of BLUEWATER all work items related to key date C6 as set out above and as those are amplified in the updated list at Annex 1.”

Mercon says that this makes it clear that it is a failure to have completed Milestone C6 which is a package of items not individual items.

Bluewater submits that this is not correct and that Mercon’s obligation is to complete individual items not just to complete packages of items. It refers to Clause 2 of Section 3 of the Contract which provides as follows:

“CONTRACTOR shall safely and with due diligence perform Work as set forth herein on a continuous basis until completion and acceptance by BLUEWATER.”

On this basis Bluewater submits that Mercon would be in default if it failed to act in relation to the individual items rather than complete all of the items in Milestone C6.

I consider that Bluewater is correct in its submissions. If, as here, the Notice of Default was given in respect of a number of items then Mercon was obliged to commence immediately and continuously proceed with actions satisfactory to Bluewater. If it failed to do so then that would give the grounds for a termination under Clause 30. The obligation is not simply an obligation to complete the whole package of items of work within a particular Milestone. It follows that a failure in respect of one item may be sufficient to justify termination.

One other point on the Notice of Default is the reference to Bluewater issuing a Notice of Termination “if within 7 days of the date hereof MERCON has not remedied its default by completing to the satisfaction of BLUEWATER all work items related to key date C6 as set out above and as those are amplified in the updated list at Annex 1.” The

On that basis it is now necessary to consider the individual items which form the basis of Bluewater’s case that it was entitled to terminate under Clause 30. The parties have concentrated on certain main items but referred to other items. I shall deal with the following items:

Bluewater contends that Mercon was contractually obliged to weigh the Central Column and substructure at Astrakhan using load cells and jacks and that it had failed to do so by the date of the Notice of Default. Bluewater then says that Mercon was required to carry out the weighing by the Notice of Default but failed to take the necessary action by the date of the Notice of Termination, thereby justifying the termination.

Mercon contends that any weighing obligation was varied so as to be an obligation to weigh using a crane and load cells and that any such obligation was part of the work at load-out in C9 and not in C6. Mercon also says that by January 2009 weighing was not required and that Bluewater only insisted on it so as to create a default which could lead to termination.

It is therefore necessary to consider a number of issues. First, what was Mercon’s weighing obligation under the Contract with Bluewater? Secondly, whether Mercon’s obligation was subsequently varied. Thirdly what was the effect of any discussions as to weighing prior to 6 January 2009? Fourthly what was the effect of weighing being included in the list of 6 January 2009? Fifthly, whether Mercon was in default on 23 January 2009. Sixthly, whether this was a valid ground for termination.

Clause 5.13 of Section 3 of the Contract, Scope of Work, referred to “Weight Control” and stated:

“The weights of all components are critical for early assessment of the SYMS during the installation phase and reliable and accurate weight reporting, taking account of items such as weld volume and paint, is therefore essential.

…

Clause 8.1 of Section 3 of the Contract provided: “CONTRACTOR shall carry out weighing of those parts/components in accordance with the requirements of the SYMS Specification Weighing.”

Clause 8.3 of Section 3 of the Contract provided that “CONTRACTOR shall have available, prior to load-out, a detailed weight report and centre of gravity calculation for each component.”

Section 6, Specifications at Attachment 6B of the Contract stated that Doc No. RUSAJBE-N1-JS-64900-4014 was the “LUKOIL Weighing Specification” as part of the Client and Authority requirements, reports, procedures and specifications. Those took precedent over the Bluewater requirements, reports, procedures and specifications which included specification BWS-S-100-SP-9903 “BLUEWATER Specification for Weight Control of Fabrications”.

The Lukoil Weighing Specification provided:

Bluewater contends that under the Contract, Mercon was obliged to carry out the weighing to comply with the Lukoil Specification and relies on the acceptance of this by Mr de Jong in evidence. This specification required Mercon to weigh with jacks and although there was no obligation to weigh with jacks under the Bluewater specification for weighing (BWS-S-100-SP-9903), Bluewater relies on the express provision of the Contract that Lukoil requirements take precedence over Bluewater requirements.

Mercon submits that weighing of the structure prior to load-out is not specifically required to be carried out by reference to the RUSA document under the Contract, but instead Clause 8.1 of Section 3 of the Contract refers to the “SYMS Specification Weighing”. Mercon says that in Bluewater’s memorandum dated 14 February 2008 this reference was replaced by the words “Bluewater Specification” and that this envisaged weighing by crane. Mercon says that there was no further discussion between the parties about weighing after February 2008 until the issue was raised by Bluewater in January 2009 as a major default and that, not unreasonably, Mercon proceeded from February 2008 on the assumption that the substructure and other components could be weighed using a load-cell in the crane, as indicated in Bluewater’s February 2008 Weight Reportand that the foundations of the substructure at the ASPO yard were constructed accordingly.

As a result Mercon submits that at least until 6 January 2009, there was no contractual obligation to weigh with jacks and that even if Bluewater’s letter dated 6 January 2009 was a valid contractual instruction making it Mercon’s obligation to weigh with loadcells and jacks, it cannot be said that Mercon’s failure to have carried out the weighing by 23 January 2009 constituted a default. It submits that the period between, in reality, 12 January 2009 when the site was planned to be re-opened and 23 January 2009 was not an adequate period to allow the work to be done and so Mercon was not therefore in default.

Mercon says that weighing was a task that Bluewater did not need to be carried out at all but insisted on anyway and in this way contrived a default. Mercon says that by the end of 2008, Bluewater had decided that it did not need, did not want, and did not intend to have the substructure weighed, either with jacks or at all.

Whilst Mercon accepts that jacks would theoretically be necessary in order to determine the centre of gravity by a physical weighing because the substructure was not symmetrical, it says that by September 2008 the centre of gravity had been accurately calculated and none of Bluewater’s personnel involved in the discussion in September 2008 indicated that weighing was necessary, nor was that issue raised at any point after September 2008 and before 6 January 2009, nor was there any mention of jacks.

Mercon also submits that, in any event, the final weighing was an activity under Milestone C9, and not Milestone C6. It refers to Clause 8.3 which provides that it should have available a “detailed weight report and centre of gravity calculation” for each SYMS component “prior to load-out” and to Clause 2.5 of the Lukoil Specification which provides that final weighing shall take place “immediately before load-out”. Mercon says that, while weighing may be a condition to completion of C9 (load-out), it was not part of Milestone C6, which relates only to integration of the centre column into the substructure. It points out that final weighing requires weighing of all components, including the Topsides and yoke system which are not relevant to C6 and so could not be part of that Milestone. Further Mercon says that any failure to weigh was not a default but an anticipatory breach.

Mercon relies on bad faith by Bluewater. It says that it ordered the weighing despite knowing that the area in ASPO’s yard where the work was being carried out, known as “Little Holland II”, had not been constructed to allow weighing by jacks and load cells. It also says that bad faith is demonstrated by the way in which Bluewater handled weighing post-termination by including weighing as a work activity for ASPO with a specific instruction that “the weighing of the SPM system shall be performed using calibrated load cells and jacks, unless otherwise agreed” despite the fact that, by then,

Bluewater says that the requirements of Clause 5.13 in respect of “Weight Control” apply to all references to weight control in the Contract and that there is nothing in the terms of Clauses 8.1 or 8.3 to show that the provisions of Clause 5.13 would not apply to the weighing referred to in those clauses. Clause 5.13 refers to the SYMS Weighing Specification as being the Lukoil specification and Clause 8.1 refers to the SYMS Specification Weighing. Bluewater submits that Mercon was required to comply with the Lukoil Specification and that this required weighing by jacks and load cells. Bluewater says that the contention by Mercon that the Lukoil specification was not provided is not made out by the evidence but, in any case, does not assist Mercon who undertook the relevant obligation and were aware from the Bluewater specification of the need to use load cells.

In respect of whether weighing was part of C9 or C6, Bluewater says that weighing the structure three times with jacks and load cells could not be carried out in less than a day and would have to have been done before load out and not as part of the load out. As Key Milestones C6 and C9 were scheduled to be only one day apart, Bluewater submits that Mercon would have to weigh under Key Milestone C6 as the structure would not be ‘ready for load out’ until it had been weighed. In any event, Bluewater says that the instruction on 6 January 2009 was an instruction to carry out the weighing pursuant to C6 and from then onwards Mercon could not wait until C9 to carry out weighing.

Bluewater submits that Mercon’s default in not weighing was not an anticipatory breach at 23 January 2009 as Mercon was in default in respect of its contractual obligation to weigh by load cells and jacks and could not comply with the instruction to weigh with jacks without very significant work given the preparation work carried out at Little Holland II.

Bluewater rejects any suggestion of bad faith on its part and says that it properly included the failure to carry out weighing in the Notice of Default. Bluewater says that Mercon did not take any steps to carry out weighing in the time before or after the Notice of Default. No investigations were carried out as to the feasibility of weighing with jacks, no equipment was procured and no quotes were obtained. Weighing was not included in the Schedule issued on 30 January 2009. As a result Bluewater says that this item was correctly included on the Notice of Default and was a valid ground for termination.

It is convenient first to consider the chronology in relation to weighing.

In September 2007 when the design was amended to include the 5th leg then, as shown by an attachment to an email of 11 September 2007, it was envisaged that Mercon would weigh with load cells and jacks. A sum of €79,718.80 plus labour was indicated for the price of the additional weighing of the 5 leg structure and it was noted:

“Originally [Mercon] has anticipated to weigh the substructure with the weighing system of the Crane “Volgar” at Load out. Together with a weight control report with theoretical weights and COG this was considered sufficient. With the current 800T mooring load design the COG will not be in line with the central column due to the fifth leg. To determine the COG 5 individual load cells are required and weighing with crane Volgar is not possible any more.”

On 5 December 2007 in an internal Mercon email Mr van Daele asked Mr Michel Lammens to sort out how “weighing of the substructure by load cells can be done in Astrakhan” as he was concerned about the availability of load cells there.

On 6 December 2007 Mercon was in contact with Mammoet about load cells and jacks and where they would be located in relation to the revised 5 leg substructure.

There was a discussion between the parties as part of the negotiations for VOR-004 about the need for the changes to weighing in order to establish the centre of gravity as part of the variation. Those discussions were recorded in a worksheet prepared, it seems, soon after 10 January 2008. It summarised Mercon’s position as set out on 17 December 2007 where it required €79,718.80 and Bluewater’s position that an acceptable figure was €8,652.96, as set out on 10 January 2008. Bluewater said it could “accept 1 extra Jack and Load cell and 1 additional labour” and it was noted that

Bluewater issued a weekly progress report to Lukoil dated 18 January 2008 in which it stated under Fabrication Engineering relating to Mercon: “Weight Control report issued by [Bluewater]….[Bluewater] Weight Control procedure and Weighing Spec. (RUSAJBE-N1-JS-64900-4014) still missing (section 3 – item 5.13).” This reproduces Mercon’s weekly report with a cut-off date of 20 January 2008 for “[Bluewater] to take action.”

On 11 February 2008, Bluewater issued the document with the title “Calculations - SYMS Weight Report”.That document contained details of weight and centre of gravity as calculated based on the design and it attached those calculations. It stated contingencies which were to be applied to calculated weights but noted at para 4.2 that “In later project stages, weights may be established by weighing with a crane or even by load cells.” The contingency was 5% for weighing by crane and 2% for weighing by load cell.

Mr de Geus prepared a memorandum on 14 February 2008 with the purpose of providing all parties, including Mercon, with “a summary of requirements and obligations” in relation to weighing, among other things. It included reference to Clauses 5.13 and 8.1 of Section 3 of the Contract and stated “Final Weight(s) and Centre(s) of Gravity shall be performed from the results of physical weighing as per BLUEWATER specifications.”

In March 2008 Mr de Jong noted under the heading of a discussion with Mercon directors “now weighing on load cells” and “To what extent is weighing on load cells according to the Contract?” Mr de Jong said that Mr van Daele had told him that weighing with load cells was originally required with a four leg structure and that he was to investigate what the Contract required.

In an email of 19 March 2008 Mercon confirmed to ASPO the outcome of a discussion as to the site preparation of the erection area in ASPO’s yard known as “Little Holland II”. An agreed contribution from Mercon of €390,000 is mentioned and that price is noted in manuscript on an attached pricing document which also notes: “not included concrete for weighing”.

In response on 27 March 2008 ASPO stated:

“At the same time I would like to draw your attention to the fact that the construction of the fabricated support foundation does not provide installation and usage of the equipment needed for weighing of SYMS construction. At our meeting with [Mercon] Representatives on 20.11.2007 it was pointed out that weighing with the equipment of f/c Volgar is not acceptable for [Mercon] and [Mercon] was to provide information of weighing method to ASPO, though ASPO has not received that yet.”

The yard preparation did not therefore include sufficient concrete to allow for weighing with jacks.

On 15 September 2008 Mr Brouwer emailed Mr de Geus saying that he wanted “to aim that the weighing at ASPO will not be executed in order to safe time for completion and of course cost”. Mr Brouwer said that he thought that the Lukoil/Bluewater contract did not specify any weighing requirements. He also asked whether Bluewater could get money back from Mercon if it did not weigh.

In response by email on the same day, 15 September 2008, Mr van Koperen said he could not find anything in the Lukoil/Bluewater contract or in the RMRS or DNV requirements and suggested calling LOC, the marine warranty surveyors, noting “probably no weighing required”. Mr van Koperen explained that weight contingencies would be higher if there was no weighing (8% rather than 3%) but that “if this percentage doesn’t matter for the crane then skip weighing.” Mr Konijn indicated that

On 15 September 2008 Mr de Geus also entered into his spreadsheet of claims against Mercon a claim for a refund in relation to weighing.

On 27 November 2008, Mr Manson asked Mr van Koperen if anything had been decided about weighing requirements. Mr van Koperen replied the same day saying initially “We are not going to do any weighing, it is not in our scope.” Later that day he said that weighing was required under the Contract with Mercon “But it is no[t] required with our contract with Lukoil. If Lukoil doesn’t want weighing we get money back from [Mercon].”

On 3 December 2008 there was a meeting between McDermott, Lukoil and Bluewater at which it was noted at item 8.3 under Weighing of structure that “Bluewater is not planning on weighing the structure. McDermott to confirm this is acceptable”.

On 4 December 2008 Mercon wrote to Bluewater to say that it had understood from Mr Konijn after the meeting that “Lukoil, McDermott nor Bluewater require weighing of the structures.” In reply on the same day, 4 December 2008, Bluewater stated:

“At no occasion have BLUEWATER formally waived the requirement, as stipulated in the Contract, that weighing of the SPM SYSTEM is no longer required. The statement of MERCON is therefore considered incorrect.”

Weighing was not included on any of the lists of outstanding work prepared by either Bluewater or Mercon during December 2008.

In a Bluewater internal manuscript note prepared on 6 January 2009 it states “Weighing is in [Mercon] scope. But is this required? Put on list with [Mercon].”

In the letter of 6 January 2009 Bluewater said that:

“MERCON have neither executed nor completed major elements of the scope of WORK related to Key Milestone C6, such as:

(a)

Weighing of the SPM SYSTEM in accordance with the provisions of the Contract;…”

By a letter to Bluewater dated 8 January 2009 Mercon stated:

“The weighing of the structures in Astrakhan before load-out, has been proposed during our tender and included in our contract to be executed during load-out with the ‘Volgar’ by using the load-cells in the system of this crane vessel. The delayed load-out forces us to execute this scope element in June 2009 when completing milestone C9. We conclude that this scope element cannot form part of the milestone C6 scope.”

On 23 January 2009 in the Notice of Default Bluewater identified a failure to complete the items on the Outstanding Works List, as amplified in the list at Annex 1 to the letter. In relation to Structural Works, Weighing was identified in Annex 1.

Mercon informed Bluewater on 28 January 2009 in response to the Notice of Default that weighing by crane during Load Out did not form part of Milestones C3 or C6, although part of the original scope and scheduled to be executed and stated it was “subject to Keydate C9 scope.”

On 30 January 2009 Mercon sent Bluewater the schedule of completion which did not include weighing.

On 3 February 2009 Bluewater issued the Notice of Termination.

On 3 April 2009 Bluewater sent a project query which attached page from the Weight Report of 11 February 2008 and a drawing and requested that LOC confirm that weighing of the substructure was not required for Lift FOB McDermott Barge. On 6 April 2009 LOC responded that “weighing of the substructure not required for above purpose.”

On the basis of the provisions of Clauses 5.13, 8.1 and 8.3 of section 3 of the Contract Mercon had the obligation to weigh the substructure using jacks and load cells as part of the requirements of the Lukoil specification. It was that specification which took precedence over the Bluewater specification. The provisions of the Lukoil specification are clear as to the use of jacks and load cells. It is far from clear that the references in the weekly reports of both Bluewater and Mercon in January 2008 to the Lukoil specification being missing had any impact at all. There was no further reference to the lack of that specification and it can be seen that Mercon were in no doubt of what was required as shown by the internal exchanges and involvement with Mammoet in December 2007. I therefore reject the contention by Mercon that it was not under an obligation under the Contract to carry out weighing using jacks and load cells either because of the provisions of the Contract or a failure to supply the Lukoil specification.

I do not read the document produced by Mr de Geus on 14 February 2008 as altering any obligation under the Contract. It recites the contractual provisions and refers to Bluewater specifications, clearly as a general reference to the specifications and not intending to supplant the Lukoil specification by the “Bluewater specification”. When Mr de Jong became involved in March 2008 there were evidently internal discussions in Mercon as to whether weighing with jacks and load cells was part of Mercon’s obligation under the Contract. Mr van Daele’s communications in December 2007 appear to be clear that such weighing was required and it may be that Mr de Jong either misunderstood what he was told at the time or did not properly interpret the contractual obligations. That had the consequence that Mercon appear not to have allowed for the proper preparation of the area of the ASPO yard known as Little Holland II. It seems that this may have been driven by a commercial decision to save money and it may be that Mr de Jong’s misunderstanding of the position led to the position where the necessary foundations were not in place to allow weighing using jacks and load cells.

In September 2008 there was obviously internal consideration by Bluewater both as to the need to carry out the weighing and also whether it was required under the contract with Lukoil. It was appreciated that it would save time and money if it were not required. This developed so that by late November and early December 2008 Bluewater had decided not to carry out weighing and had agreed this with McDermott and Lukoil. This was then communicated by Mr Konijn to Mr de Jong, as recorded in Mercon’s letter of 4 December 2008. Mr Konijn’s evidence in his third witness statement confirmed that this was the position, contrary to his previous evidence. However it is clear from Bluewater’s reply of 4 December 2008 that Bluewater was not removing weighing from Mercon’s workscope. Therefore weighing remained an obligation of Mercon under the Contract.

In December 2008 work was continuing with a view to Lukoil accepting the integrated structure and to Mercon therefore achieving Milestone C6. Weighing does not seem to have featured in the lead up to 18 December 2008 when it became clear that Lukoil would not accept the substructure. This led to Bluewater taking a much stricter approach to the work needed to complete Milestone C6. Whilst, in anticipation of Lukoil accepting the integrated structure subject to a punch list, Bluewater took the same approach with Mercon, there was clearly a change in that approach in late December 2008 and early January 2009.

Weighing remained an obligation for Mercon under the Contract. The purpose of weighing was to confirm the actual weight and Centre of Gravity of the integrated structure which had been the subject of calculations based on the design. I consider that Bluewater is correct in its submission that the weighing activity would fall within Milestone C6 which required the integrated structure to be “ready for load out”. It was part of the preparation to allow load out to take place to achieve Milestone C9 rather than an activity which formed part of the load out Milestone itself.

In any case, if there had been any uncertainty about when the weighing was to be carried out then the letter of 6 January 2009 made it clear that Mercon had to carry out the weighing as part of Milestone C6. That would have been a sufficient instruction if the work had not already formed part of the work required to achieve Milestone C6.

By its response on 8 January 2009 Mercon indicated that its contractual obligation was to carry out weighing using the load cells of the crane Volgar and that it intended to do this as part of load out under Milestone C9. For the reasons set out above its obligation was to carry out weighing using jacks and load cells and not the crane and load cells. Further Mercon’s response in that letter amounted to a refusal to carry out the weighing in accordance with the Contract as part of Milestone C6 and as required by the letter of 6 January 2009.

There followed meetings on 14 January 2009 between Mercon and Bluewater at which the contents of the schedule attached to the letter of 6 January 2009 was discussed and whilst weighing was mentioned, Mercon repeated that it would carry it out using the crane. After these meetings Mercon wrote three letters (Ref 321, 322 and 323) to Bluewater on 19 and 20 January 2009 dealing with matters in that schedule. Those letters did not deal with weighing. At a meeting on 20 January 2009 Mercon stated that it wanted to discuss weighing at the next meeting and repeated that they did not consider it as part of the work scope other than with the crane as part of Milestone C9.

There appears to have been no discussion by the time of the Notice of Default on 23 January 2009 when weighing was again included on the list of outstanding work as amplified in Annex 1. In its letter of 28 January 2009 responding to the Notice of Default Mercon repeated its position that “Weighing by crane during Load Out; subject of the Keydate C9 scope.”

On 30 January 2009 Mercon sent Bluewater its schedule for completion of all outstanding work. There was no reference to weighing on that list. On 3 February 2009 Bluewater then issued the Notice of Termination in respect of all remaining work under the Contract.

It can therefore be seen that Mercon had an obligation under the Contract to carry out weighing as part of Milestone C6. It was instructed to carry out that in the letter of 6 January 2009 and in the Notice of Default. It held to its position that it did not need to carry out weighing with jacks and load cells as part of Milestone C6 and that its only obligation was to carry it out with a crane as part of Milestone C9. It therefore did nothing in relation to weighing and did not even include it in the schedule submitted on 30 January 2009. In those circumstances, prima facie, Mercon did not upon receipt of the Notice of Default “immediately commence and thereafter continuously proceed with action satisfactory to BLUEWATER to remedy such default” and so Bluewater was entitled to issue a notice of termination in accordance with Clause 30.1 of the Contract. Whether the action has to be objectively or subjectively satisfactory to Bluewater, the fact that Mercon wrongly refused to carry out weighing by jacks and load cells and refused to carry it out as part of Milestone C6 and so had done nothing in response to the Notice of Default cannot possibly amount to commencing and continuously proceeding with satisfactory action.

Mercon refers to the fact that, as I have found, in early December 2008 it had been told by Mr Konijn that McDermott, Lukoil and Bluewater did not require weighing. However, Bluewater’s letter of 4 December 2008 made it clear that it had not waived the requirement for weighing. In addition, as the correspondence shows, Mercon was not saying in January 2009 that weighing did not need to be carried out but rather that it would carry it out using a crane as part of Milestone C9.

Mercon relies on bad faith by Bluewater. Whilst on the basis of Mr Konijn’s evidence it seems likely that some people in Bluewater were aware that weighing with jacks and load cells could not be carried out because of the way in which Little Holland II had been constructed I do not consider that there is any evidence that this formed any part of Bluewater’s decision to include weighing in the letter of 6 January 2009 or the Notice of Default. Mercon’s satisfactory action in response to the Notice of Default would have needed it to have taken into account the requirement to prepare foundations for the jacks and load cells but Mercon took no action at all. I also reject the assertion that post-termination Bluewater contrived to include weighing using load cells and jacks as a work activity for ASPO and dealt with other documentation in such a way as to assist its case on termination. Whilst in April 2009 it was confirmed by LOC that weighing was not required, I consider that it was appropriate for Bluewater to continue to include an obligation to carry out weighing in the contract with ASPO. Equally, whilst some in Bluewater may have been aware of the difficulty with the foundations at Little Holland II in December 2008, I accept that the difficulty posed only became clear to some in Bluewater at a later date. The need for everyone to be involved in the decision to use calculated weights and centre of gravity instead of actual figures required some co-ordination but I think Mr de Geus exaggerated the difficulty of this in his evidence.

As a result, I find that on 3 February 2009 Bluewater was entitled to issue the Notice of Termination based on Mercon’s failure to take steps in respect of its default in its obligation as to weighing under the Contract. Bluewater’s subjective view that the action taken by Mercon was not satisfactory is not affected by anything which comes within the limitations on the exercise of that discretion.

Bluewater says that, although Bluewater issued a Notice of Partial Termination of coating repair work to the Central Column on 11 November 2008, there was a considerable amount of painting and shotblasting work which Mercon had to carry out as at January 2009. In particular it refers to the following items included in the list attached to the letter of 6 January 2009 and included in the Notice of Default:

Bluewater says that when Mercon produced its schedule for completion of all outstanding work on 30 January 2009 there was a substantial amount of work, which was shown to take some two weeks in that programme.

Bluewater submits that Mercon was not progressing the shotblasting and painting works in January or February 2009, and that this was primarily due to Mercon’s difficulties with ASPO. Mercon says that it was carrying out some painting work but was prevented from doing more by the weather conditions. Bluewater says, in response, that this shows that work could be carried out but that Mercon had to make the necessary arrangements in terms of heaters and habitats to do so.

Mercon says that it was not until the 6 January 2009 that Bluewater made it clear that it wanted painting to be progressed during January 2009 as, prior to that, it says that the work was to be treated as a punch list item and, in any case, the works were not due to restart after the Christmas break until 12 January 2009. In those circumstances Mercon submits that the failure to complete the painting by 23 January 2009 cannot be regarded as a default. In addition Mercon says that its schedule for completion issued on 30 January 2009 indicated completion of the painting between 17 February and 2 March 2009, a duration of 13 days. That timing, it submits, would have allowed some improvement in the weather and for the commercial issues between Mercon and ASPO to be resolved and for any outstanding amounts to be paid.

I therefore have to consider what painting work should have been carried out up to 23 January 2009 and whether Mercon was in default in the period up to the Notice of Termination on 3 February 2009.

In December 2008 Mercon and Bluewater were working on the basis that the integrated structure would be accepted by Lukoil and there would be a punch list containing items of work which would be completed after acceptance. Some items of painting would have been included on that list. However, after it became clear that Lukoil would not accept the substructure on 18 December 2008, it is evident that Mercon would have to continue with the necessary painting work to achieve Milestone C6. Mercon was aware of this and Mr Wickerhoff’s evidence, which I accept, was that before returning to Holland for the Christmas Break, he had left instructions for ASPO to complete the painting work in relation to all of the items except OWL TS4.2 (General touch-up Top Side) and OWL TS4.4 (Touch up modified grating panel on PRD).

ASPO timesheets completed in Russian, as interpreted by Mr Umerov, show 8 workers painting on 4 January 2009, 3 workers painting on 5 January 2009 and 4 workers painting on 6 January 2009. The Russian Orthodox Christmas is then celebrated on 7 January. The timesheets show work relating to pile sleeves being carried out on 11, 13, 18, 19, 20, 21, 22 and 23 January 2009. Scaffolding work was carried out on 12, 13, 14, 15, 16, 17, 19, 20, 21 and 22 January 2009. There is also reference to some touch up painting on 19 January 2009.

Other records, including those prepared by Mr Knibbe of Bluewater, appear to show that no work was carried out at the ASPO yard until Tuesday 20 January 2009 when work started on QA/QC of the weld beads on the pile sleeves. It continued on 21 and 22 January with a report being received on Friday 23 January and work being said to be complete by Saturday 24 January 2009. Mr van Zomeren and Mr van den Oever of Mercon were present on site for that period but left on Sunday 25 January 2009. On 21 January work was carried out to the cable trays on the turntable. There was also some scaffolding work shown. An outstanding work list shows that a number of items had been completed by 24 January 2009.

If the ASPO timesheets are correct and have been correctly interpreted by Mr Umerov then painting work was carried out in early January 2009 when the maximum temperatures were -6 degrees (4 January 2009), -5 degrees (5 January 2009) and -10 degrees (6 January 2009). However no painting work was carried out on days when the temperatures were higher. On 16 January 2009 it was +3 degrees, on 18 January 2009 it was +3 degrees, on 22 January 2009 and on 24 January 2009 it was +5 degrees. There was evidence in an email dated 26 January 2009 from Mr Umerov that Mr Valerie Kramykhr, the Paint Manufacturers’ representative, had said that “we can’t put finish paint layer when temperature was below 0 deg C.”

Whilst Mr Wickerhoff raised an issue in his evidence about the relevance of the dew point, he said it would be a matter for an expert and there appears no reference to dew point in the documents. The Contract specification at para 11.2 provides that: “painting shall not be completed in the open air during periods of rain, snow, fog or mist and also shall not be attempted when the weather conditions may cause condensation and flash rusting”. It also stated that paint application might be suspended by Bluewater or the Paint Manufacturers’ representative.

Further there was nothing to prevent Mercon from carrying out painting work using habitats and heaters, although as Mr Manson said it would be difficult but achievable. His manuscript comments on the schedule attached to Bluewater’s letter of 6 January 2009 also refer to the use of heaters. In an email of 15 December 2008 Mr Wickerhoff had said that the painting works had been delayed because of adverse weather and lack of sufficient heating and on 30 January 2009 he said in an email to Mr Umerov that “Painting inside the Central Column should not be a problem with a heater and a cover on the middle floor.” All this confirms that after 6 January 2009 and making an allowance for the Russian Christmas period, Mercon could have been progressing painting work. This is also supported if in fact, as Mr Umerov suggests based on ASPO timesheets, that painting work was carried out in early January.

Except, it seems for some painting in early January 2009 and possibly some touch-up painting on 19 January 2009, no painting work was carried out between 6 and 23 January 2009 or between 23 January and 3 February 2009. Mr Umerov refers to a note by Mr Knibbe on 28 January 2009 saying that “according painting contractor they will continue painting in March or April, agreed with [Mercon].” This would seem to confirm that Mercon was not intending to carry out painting work in response to the Notice of Default.

I consider that the real reason why Mercon was not progressing painting in January 2009 was the poor commercial relationship between Mercon and ASPO at this time.

In the first he records a discussion with Mr Ryzhov of ASPO about the remaining work which Mercon needed to finish as soon as possible. Mr Umerov reported that Mr Ryzhov said:

“I spoke with Ryzkov today morning concerning it, and showed him excel sheet with all remaining paint work, which we need to finish as soon as possible. But he said, that we can not make any plannings concerning works, which are not in the main contract before receiving all debts from [Mercon] and signing additional agreement. He said also, that is Marisov decision and we can not change it, we must to close main contract, to sign additional agreement, to receive depts. And only after that we will make plan for painting and for other additional works.”

In the second he states

“I spoke with Ryzkov again about Additional Agreement, and he said, that he red this letter today together with Marisov, and during today ASPO will send response (as he told me, for Marisov this letter is not enough, he want to receive signed agreement, which ASPO sent to [Mercon])

He also said that he cannot permit final painting before receiving payment for the main painting from [Mercon].”

Mr Umerov’s evidence on this was unsatisfactory. He sought to avoid the clear effect of this evidence. In fact the truth was that until the financial position between ASPO and Mercon was resolved then ASPO would not be carrying out further painting work.

Whilst Mercon accepts that progress was hampered by the deterioration of the commercial relationship between Mercon and ASPO, it says that, by the beginning of February 2009, that situation was under control because on 30 January 2009 it made a payment to ASPO which was intended to settle all due invoices, leaving unpaid only disputed invoices and those not yet due for payment. On 3 February 2009 Mercon discovered that, as a result of an error by its financial head, it had not in fact paid ASPO for invoice No.56 dated 19 November 2008 which was for painting and had been due for payment within 30 days.

I consider that the real reason why Mercon did not carry out painting work from 6 January to 3 February 2009 was because of the dispute and the failure by Mercon to make payment to ASPO. Whilst the further payment on 30 January may have meant that ASPO would start work, no work was carried out up to 3 February 2009. As a result, I do not consider that this late payment affects the position in relation to either the Notice of Default or the Notice of Termination.

Mercon seeks to rely on the discussions which had taken place since late 2008 between ASPO and Bluewater to say that this affected the commercial position between ASPO and Mercon. It says that, unknown to it, ASPO had by then already been told that Bluewater intended to terminate the Contract, engage ASPO directly and pay ASPO’s invoices from money due from Bluewater to Mercon. Mercon says that it was hardly surprising that ASPO took an uncooperative line with Mercon during January 2009 as it was clear to ASPO that Mercon would soon be ejected from the project and that, if that happened, Bluewater would pay ASPO’s invoices in full and without question.

I do not consider that there is anything in this situation which can assist Mercon. Mercon was in dispute with ASPO and had failed to pay invoices. That was the real reason why ASPO was not carrying out the work. If anything, the knowledge that ASPO would be paid by Bluewater what was owed by Mercon would have been just as likely to encourage ASPO to carry out work on the basis that it was going to be paid. This suggests that it is not how ASPO saw the position. I therefore do not consider that the fact that Bluewater, as is usual in these circumstances, started a dialogue with ASPO about a possible contract if the Contract was terminated, affected the position or, in some way makes Bluewater responsible for the failure of ASPO to carry out the work for Mercon.

As a result I consider that the relevant items of painting and shotblasting which were properly the subject of default at 23 January 2009 were PL CC4.1 (painting on piping integration welds), PL CC4.2 (general touch up sub-structure, including Central Column), PL CC4.2 NDT (surfaces and drain put inside Central Column above watertight floor), OWL TS4.3 (Paint door of Pig Receiver) and PL TS 4.1 (Four Integration welds columns Top Side - applying the top coat). In the pleadings Bluewater accepts that the touching up of the Topsides (OWL TS4.2) was to be left until closer to Load Out and, on the evidence, it seems that touching-up the modified grating panel on PRD (OWL TS4.4) may have had to await other work which had not been carried out.

Whilst Mercon did not carry out any painting in the period after the Notice of Default up to the Notice of Termination, on 30 January 2009 it did submit a programme which showed the outstanding works including the relevant items of painting and shotblasting being carried out from mid-February for about two weeks. Mercon says that the start date would have allowed for some improvement in the weather and for the commercial issues between Mercon and ASPO to be resolved and for any outstanding amounts to be paid.

Mercon also says that Bluewater had no need or desire for the painting to be completed in any shorter period. It refers to the fact that Bluewater had told Lukoil that the painting would be done in April 2009 when the weather was better. It also refers to the draft contract handed over to ASPO on 20 January 2009, where the key date for completion of the works, including painting, was 25 March 2009, except for the coating on the Central Column, for which the date was 1 June 2009 and the fact that, in the event, the work was carried out at the beginning of April 2009.

I do not consider that on the basis of the outstanding painting items which Mercon had failed to carry out by 23 January 2009, action consisting solely of a programme produced after 7 days could amount to compliance with the obligation that it should“immediately commence and thereafter continuously proceed with action satisfactory to BLUEWATER to remedy such default.” The painting work could and should have been commenced and been continued prior to 23 January 2009 and certainly between 23 January 2009 and 3 February 2009 for there to be satisfactory action even on an objective basis. The production of a programme with a starting date in mid-February

The fact that Bluewater was seeking to agree a programme with ASPO which showed later dates should the Contract be terminated or the fact that, in the event, the painting work was completed in April 2009, does not, in my judgment, determine or form a basis for establishing what was satisfactory action for Mercon who was under an existing obligation to carry out the painting work, was in default of that obligation and was under a Notice of Default requiring action under Clause 30. Nor is the fact that Bluewater was protecting its position by telling Lukoil that the painting work would be carried out in April 2009 determine or establish satisfactory action by Mercon.

I therefore consider that the items of painting and shotblasting were properly included in the Notice of Default and, as Mercon did not commence or continue action satisfactory to Bluewater, Bluewater was entitled to issue the Notice of Termination under Clause 30 on the ground of this default. Bluewater’s subjective view that the action taken by Mercon was not satisfactory is not affected by anything which comes within the limitations on the exercise of that discretion.

Originally the Yoke Hinge was to be delivered as part of the Topsides but this did not happen. As a result, the work to fit the Yoke Hinge to the Topsides had to be carried out in Astrakhan. The Yoke Hinge was shipped on Ship 3. Although that ship finished discharging on 12 November 2008 and departed from Astrakhan on 13 November 2008, the Yoke Hinge remained in the Astrakhan customs area (ACCP) and not at the ASPO yard due to the problems with the documentation. It was released from ACCP on about 17 December 2008 and placed on the quayside at ASPO’s yard by the crane Bogatyr on about 18 December 2008.

There is a dispute as to whether the work to install the Yoke Hinge on the Topsides formed part of Mercon’s scope of works. Bluewater says that it was part of Mercon’s scope of work to install the Yoke Hinge on the Topsides so it was ready for load out. It refers to drawing LUK-S-A43-DG-4303 001 dated 14 March 2008 which is not an installation drawing but a barge transportation drawing. Bluewater says that Mercon did not require any additional site instruction to have to install the Yoke Hinge.

Mercon says that the installation of the Yoke Hinge did not form part of Mercon’s scope of work. It refers to Bluewater’s pleaded case that Mercon refused to install the Yoke Hinge “although this was clearly required by clause 7.27 of section 3.” Mercon says that although it was not responsible for the final fitting of the Yoke system to the Topsides, it was originally required, under section 3, clause 7.27, to trial-fit the Yoke Arm at Astrakhan by performing “a rotation test of each complete and installed Yoke Arm to ensure free movement of the arms within the support hinges of the Mooring Turntable.”

Mercon says that the Yoke system was originally designed to be detached from the SYMS to allow unmooring of the storage vessel at the joint between the Yoke Hinge and the Topsides. On this basis it says that the Yoke Hinge was a relatively simple device which was to be provided to Mercon as “free issue” ready for welding to the

Mercon says that, by January 2009, the scope of works in relation to the Yoke system had changed in that the Yoke Hinge had become more complex and Bluewater had instructed Mercon to fabricate and machine it. Secondly, Mercon says that the point of detachment of the Yoke system had changed from the joint between the Yoke Hinge and Topsides to the joint between the Yoke End and the Yoke Hinge so that the Yoke Hinge would stay attached to the Topsides and the rest of the Yoke system would leave with the storage vessel. Thirdly, the Yoke system was not to be assembled in Astrakhan but, instead, the ballast tank, Yoke Arms and Yoke End were to be transported from Gorinchem directly to Baku for assembly there, with only the Yoke Hinge sent to Astrakhan. This meant that Milestones C10 to C12 no longer applied. Mercon says that because the Yoke system was no longer being assembled in Astrakhan, no trial-fit of the “Yoke Arms” which described the previous version of the Yoke system, could take place there and so clause 7.27 became redundant. Bluewater seeks a rebate for that in these proceedings and I deal with this below.

Mercon says that Bluewater asked it to fit the redesigned Yoke Hinge to the Mooring Turntable on the Topsides and that this was an entirely new task, not contemplated by the Contract because the joint with the Topsides was originally intended to be the point of detachment. Mercon says that this work required a site instruction and was included in the punch list and in Mercon’s letter dated 23 December 2008 on the basis that it was subject to an instruction being given.

It is evident that the scope of the work to be carried out by Mercon originally included the Yoke Arm being installed to the Topsides. The design of the Yoke Arm changed so that instead of the Yoke Arm being attached to the Yoke Hinge at the Topsides, the Yoke Hinge now included part of the Yoke Arm and the other part of the Yoke Arm became known as the Yoke End. The scope of the work changed because of this but essentially Mercon’s work originally included attaching the Yoke Arm to the Topsides (as shown on the drawing relied upon by Mercon) so that it could be loaded out (as shown on the drawing relied upon by Bluewater) but now involved the attachment of the Yoke Hinge part of the Yoke Arm to the Topsides.

Bluewater’s pleaded case relying on Clause 7.27 of Section 3 of the Contract relating to trial fitting of the Yoke Arm is not directly relevant to the question of the obligation to carry out the final installation of the Yoke Hinge. I therefore accept that it is not clear how the change in the design of the Yoke Arm and the necessary change in installation was documented but it was clear that, by December 2008, the relevant change in the work had been made because Mercon had carried out the necessary machining of the Yoke Hinge which evidently had to be installed. Equally, the fact that Mercon included installation of the Yoke Hinge on the Outstanding Work List attached to its letter of 23 December 2008 as being something which “Mercon was made aware by the Bluewater

However, on the evidence referred to, I consider that no clear instruction by Bluewater to Mercon to install the Yoke Hinge has been identified by Bluewater, prior to Bluewater’s letter of 6 January 2009 by which they made it clear to Mercon that it should complete the work, including “install yoke hinge”.

Mercon says that the Yoke Hinge was then off-loaded from ACCP to an area not agreed by Bluewater and Mercon. As a result on 19 December 2008 Mercon did not sign the certificate for transfer of the Yoke Hinge so as to accept custody following its release from customs, as explained in Mercon’s letter of 24 December 2008. Mercon says that it could not install the Yoke Hinge as it was not in its possession.

Mercon says that because the cargo was shipped DDU it was Bluewater’s and not Mercon’s responsibility to unload the Yoke Hinge but that, after release from customs, the unloading was carried out using the crane barge “Bogatyr”. Mercon says it agreed an unloading plan using the Bogatyr on 15 December 2008 as shown on a drawing signed on that date which showed the Yoke Hinge being placed in ASPO’s yard close to the substructure in Little Holland II so that it could be conveniently lifted directly onto the Topsides. Mercon says that the Yoke Hinge was a critical item in the SYMS and was very heavy and easily damaged and could not be easily moved and any move would involve an additional element of risk. Mercon says it was therefore entitled to take the position that it was not contractually obliged to carry out further work on the Yoke Hinge until it was instructed to move it and it says that Bluewater never gave an instruction to that effect.

Bluewater says that following the release from customs there was no reason why Mercon did not accept custody of the Yoke Hinge. In relation to the location of the Yoke Hinge, Bluewater says that there was no agreement between Bluewater and Mercon as to the location and that the plan relied on by Mercon of where the Yoke Hinge should be placed was not signed by any Bluewater representative and does not bind it. It says that, as confirmed by Mr de Jong in evidence, there was nothing in the Contract or in VO-005, which stated that Bluewater was required to deliver the Yoke Hinge to any particular location in ASPO’s yard.

The responsibility for the arrangements by which the Yoke Hinge and the Crane Structure were transported from the ACCP to the quay of ASPO’s yard is not clear but the drawings relied on by Mercon make it clear that the unloading was something which was being organised by ASPO using the Bogatyr. It is also apparent that the Yoke Hinge could not be unloaded onto the quay at Little Holland II because the Volgar crane was at that location. The transfer documentation which Bluewater presented to Mercon on 18 December 2008 but which Mercon refused to sign strongly suggests that until that was signed it was Bluewater who bore the risk of the Yoke Hinge and that would also mean that Bluewater would in fact be likely to be responsible for that element of transport. It certainly does not seem that it was Mercon’s responsibility under DDU terms.

However, once it was delivered back to Mercon at ASPO’s yard, in the absence of any agreed location, then the responsibility for transporting the Yoke Hinge to the worksite would necessarily form part of the work required to install the Yoke Hinge. On the basis set out above, I consider therefore that by 6 January 2009 Mercon had a clear instruction to install the Yoke Hinge and this would include the necessary transportation from one location in its sub-contractor’s yard to the working area in Little Holland II.

In those circumstances, given that there was the Russian Orthodox Christmas holiday break until 12 January 2009, this was work which Mercon should have carried out at least from that date. There was nothing to prevent Mercon from moving and installing the Yoke Hinge either before 23 January 2009 or between 23 January and 3 February 2009.

It follows that this work was outstanding on 23 January 2009 but as discussed at the meeting on 19 January 2009 and as set out in the list attached to Mercon’s letter 322 of 20 January 2009, whilst Mercon accepted that it had been instructed to carry out the work, it wanted confirmation of entitlement to compensation and extra time to allow preparation and scheduling of the associated activities. In other words whilst Mercon had an instruction it was refusing to undertake the necessary preparatory and scheduling work without confirmation of payment and additional time. I consider that on that basis Mercon was in default in relation to the work to carry out the installation of the Yoke Hinge when the Notice of Default was given on 23 January 2009.

Mercon says that in its 30 January 2009 schedule of completion it proposed to complete the fitting of the Yoke Hinge over five days beginning 18 February 2009 so that, if Mercon was in default, that was satisfactory remedial action. It says that the Yoke Hinge was a punch list item and was not one of the items identified in Bluewater’s letter of 6 January 2009 as a “major element” of incomplete work so there was no urgency for the work, which could have been done at any time prior to load-out.

Mercon also says that after terminating the Contract, Bluewater told ASPO that it was content for the Yoke Hinge to be installed “when temperatures are well above 0˚C, say beginning of April” and that the work did not appear to have been done until May 2009.

Whatever was the position before 6 January 2009, it is clear that from that date Mercon had an instruction to install the Yoke Hinge and that would include making arrangements to move the Yoke Hinge. By 23 January 2009 Mercon had done nothing and indicated they would not plan or schedule the work without confirmation of entitlement to compensation and additional time. The only action taken after the notice of default was to put in a programme to say that they would commence the work on 18 February 2009 and carry it out over 5 days. I do not consider that, given the need to move the Yoke Hinge, leaving any action on the Yoke Hinge for a further 18 days can, even on an objective basis, be said to amount to compliance with the obligation that it should“immediately commence and thereafter continuously proceed with action satisfactory to BLUEWATER to remedy such default.” Mercon clearly had an obligation to install the Yoke Hinge without prior confirmation of entitlement to compensation or additional time and the commencement of the moving and installation only on 18 February was not the commencement of satisfactory action to Bluewater and that decision was not outside the limitations on its discretion. In any event I do not consider that it was satisfactory on an objective basis.

I therefore consider that the installation of the Yoke Hinge was properly included in the Notice of Default and, as Mercon did not commence or continue action satisfactory to Bluewater, Bluewater was entitled to issue the Notice of Termination under Clause 30 on the ground of this default. Bluewater’s subjective view that the action taken by Mercon was not satisfactory is not affected by anything which comes within the limitations on the exercise of that discretion.

Bluewater says that Mercon was obliged to load test the winch supports which were provided free-issue to Mercon by Bluewater. It says that once Mercon had installed the winches onto the support, the winches and the supports had to be tested again as part of the contractual requirement to load test under Clause 7.22 of Section 3 of the Contract. In any case it says that it was the subject of the instruction on 6 January 2009.

Mercon says that load testing of the winch foundations was not within its scope of work and relies on Attachment 5B to the Contract which states “Supply and install [winch] support… No Scope.”. It says that this item started as a requirement to carry out a “winch function test” for the winch on the Topsides and that it was only in the letter of 6 January 2009 that Bluewater indicated the need for “SAT-testing of the winch foundations” but gave no details of what was required.

The provision relied on by Bluewater in Clause 7.22 of section 3 of the Contract states:

“Winch Function Test

CONTRACTOR shall perform a winch function test in which the winch wire shall be routed through the various rigging arrangements. CONTRACTOR shall submit the winch function test procedure to BLUEWATER Representative for approval a minimum of eight (8) weeks prior to execution of the test.”

I do not consider that Bluewater is correct in saying that this winch function test is related to load testing of the winch foundations or that a winch function test would necessarily include an appropriate test for the foundations. It is to be noted that there is no complaint of a failure to carry out a winch function test. I accept that, as Mercon submits, the Contract did not include any scope in terms of the supply and installation of the winch support and there is therefore no obligation for testing the support.

It is not clear how this item arose. Bluewater’s manuscript note of a meeting on 6 January 2009 refers to a “winch load test” but that became “(d) SAT-Testing of the winch foundations” in the letter of 6 January 2009 whilst the sheet attached to that letter referred to “Load Test Winch, 1.5 x Load…SAT”.

Mercon replied on 8 January 2009 and stated “Testing of the winch or its foundation does not form part of the present Mercon scope of work. Bluewater is requested to refer to Section 3 of our contract and define the scope element.

The question of the foundation load test was raised but does not seem to have been taken further at the meeting on 14 January 2009. In Mercon’s letter of 20 January 2009 the list of outstanding work, for which it sought confirmation of compensation and additional time, it included as item OWL TS 1.7 “Load Test Winch Supports, 1.5 x Load.”

That item then appeared in Annex 1 to the Notice of Default on 23 January 2009. In Mercon’s schedule for completion of all outstanding works on 30 January 2009 it included this item as taking 1 day on 10 to 11 February 2009.

Bluewater says that no work was carried out on this issue following the Notice of Default and as it was correctly included in that notice submits that it was a valid ground for termination.

Mercon says that, given that this was not a significant item in the context of the project, there was no reasonable or rational basis for Bluewater to regard the remedial action proposed by Mercon on 30 January 2009 as unsatisfactory and the test was, in the event, not carried out by ASPO until 12 March 2009. Mercon also says that, on the basis of Mr de Geus’s evidence, Bluewater wrongly proceeded on the basis that Mercon had omitted winch testing from the programme attached to the letter of 30 January 2009.

There was uncertainty about the nature of the test which Bluewater was requiring and it was only on 6 January 2009 that a foundation or support test came into Mercon’s work scope. It was then only on 20 January 2009 that it became the finally required item of “Load Test Winch Supports, 1.5 x Load”. However in its letter of 20 January 2009

However, Mercon then programmed the work to start on 10 February 2009 but Bluewater seems to have been under the impression that Mercon had not included the test. I consider that on any sensible basis Mercon had complied with the obligation that it should“immediately commence and thereafter continuously proceed with action satisfactory to BLUEWATER to remedy such default.” In order to carry out the work by

There were two items of outstanding work (items OWL-CC3.2, OWL-CS2.2) which related to the installation of flame and gas detectors. These items arrived in Astrakhan on Ship 3 which finished discharging on 12 November 2008 and departed from Astrakhan on 13 November 2008. However these items were retained in the Astrakhan customs area (ACCP) and at the date of termination they were still held there. The issue is therefore who was responsible for the fact that the flame and gas detectors were retained in the customs area.

Bluewater says that the reason that the gas and flame detectors were detained in customs was due to Mercon’s errors in preparing the paperwork and packing the items which were shipped and had Mercon not made these errors, the flame and gas detectors would have been available. It therefore contends that at 23 January 2009 Mercon was in default in relation to the installation of these items and had not done anything by the date of termination so that it was entitled to terminate on this ground.

In the schedule for completion of all outstanding work submitted by Mercon on 30 January 2009, the gas detectors to the Central Column are shown as being installed over 1 day between 10 and 11 February 2009 and the flame detectors on the Crane Structure are shown as being installed on 1 day between 20 and 21 February 2009.

Mercon says that the delay in the release from customs of the gas and flame detectors shipped on the third vessel was caused by Bluewater’s actions and was not Mercon’s fault and therefore it was not possible to fit them by 23 January 2009. As a result Mercon says it was not in default and cannot be blamed for not having fitted the gas and flame detectors by 23 January 2009 or 3 February 2009.

On 15 August 2008 Mr Hoep sent Mr Heij revised documents for Ship 2. Mr Heij responded later that same day and said this in relation to the fire and gas detectors:

“1)

Proforma Invoices

…

As already discussed only the fire and gas detectors have been imported on a temp. basis the value for this cargo should be the same as at the time [of] import as well as description [etc]

…

3)

BOL

Because the Gas and fire detectors are mounted on the structure you will not be able to issue a separate BOL for this. In fact there is no requirement to issue a BOL for this. …”

Mr Hoep checked this information with Mr van Dijk of Flinter on 18 August 2008 who confirmed the position to Mr Hoep the same day.

On 19 August 2008 Mr Hoep sent revised transport documents to Mr Heij who responded to say that the detector equipment should form an integral part of structure on which it is mounted in order to avoid problems and if it were listed separately it would cause problems at customs. He asked for documents to be revised.

Mr Hoep then sent Mr Heij an email with revised documents, confirming that the flame and gas detectors were added to the Astrakhan Bill of Lading and Proforma Invoice. However, the flame and gas detectors were not loaded onto Ship 2 although they were included on the packing list.

Ship 2 then arrived in St Petersburg on 1 September 2008 and after various issues with the shipping information, Ship 2 cleared customs in St Petersburg on 5 September 2008.

On 11 September 2008 Mr Heij learned that the 2 flame/gas detectors which were supposed to be shipped on board Ship 2 had in fact been loaded on the crane structure to go on Ship 3. He said that Mercon had therefore misdeclared the items shipped so that there would be a difference in weights and values between those entering St Petersburg and arrival in Astrakhan. He said as follows:

“In our opinion there are 2 options i.e

1

Inform Lukoil about this matter, issue new documents and hope that the situation can/will be corrected. Most probably Lukoil will use this as an argument to pass on any delays on to us and create a lot of problems.

2

On paper load the detectors in a container, keep the documents as submitted, pretend nothing has happened and hope for the best. If at a later stage the detectors are not found to be in the container, investigate matters, apologise and hope that it can be corrected. In any case the vessel by then would have departed.

For the moment, we believe that option 2 is probably the best. It could create problems, however not certain if this will be the case, making sure that the vessel will not be delayed.”

Mr de Geus replied on the same day saying “My blessing on option 2”.

In a letter sent to Mercon on 17 September 2008 Bluewater said this:

On 19 September 2008 Lukoil said that they were aware that there were 7 flame detectors on Ship 2 but that 13 flame detectors had been stated in the documents used to receive a transit customs declaration in St Petersburg. Lukoil stated that the wrong documentation would prevent preliminary customs clearance and would mean that the cargo had to be unloaded at the Central Cargo Port to perform customs clearance. Bluewater sent this letter to Mercon on 22 September 2008 saying that: “BLUEWATER hold MERCON fully responsible for adverse impacts, should these arise and cannot be mitigated, as previously notified to MERCON.”

On 23 September 2008, Mercon sent Bluewater a letter explaining the position. There were 13 Flame Detectors and 2 Gas detectors free-issued by Bluewater and subject to temporary import into the Netherlands. 7 flame detectors were installed on the Turntable/Pig receiver deck and shipped to Astrakhan on Ship 2; 4 Flame Detectors and 2 Gas Detectors were awaiting transport to Baku and 2 Flame Detectors were originally installed on the crane structure but were disassembled and subsequently shipped to Astrakhan.

However Mercon said that the Bill of Lading for Ship 2 erroneously contained all these items. Mercon then stated:

“Moreover, BLUEWATER has demanded from MERCON to be the party verifying and releasing the Bill of lading for use with the second shipment. By means of its approval, BLUEWATER has taken responsibility for the contents of the Bill of lading. MERCON now has to conclude that BLUEWATER missed the referred discrepancy while checking and approving the Bill of Lading despite the knowledge it should have had that six detectors are destined for Baku and that the Flame Detectors installed on the Crane Structure in accordance with BLUEWATER’s design, would remain in Gorinchem.

Per L-474 BLUEWATER commits to assisting MERCON in this matter, MERCON however is not actually importing the cargo. In turn MERCON will of course do its utmost to assist BLUEWATER in correcting the paperwork used for the preliminary customs declaration. MERCON is willing to put effort in preparing a revision of this Bill of Lading as was done for the first shipment with the 1kg discrepancy between documents.”

In the event the second option was adopted and no change was made to any of the shipping documents and the original documents were used by Bluewater/Lukoil to clear the entire cargo through customs without problems. The over declaration of the gas and flame detectors therefore did not have any effect on the passage of the second shipment through customs.

On 16 October 2008 Mr Knibbe raised the problem of the gas and flame detectors with Mr Heij. He said that there were the 7 flame detectors which had arrived on Ship 2. There were 2 which had been shipped separately and were in his office in Astrakhan and there were 4 still with Mercon, together with 2 gas detectors. He said:

“As already discussed with Maurice, the items still at MSS (4xflame detectors, 2x gas detector) are going to be delivered separate because Lukoil doesn’t want to do the declaration again. So we also need to take them of the packing list. Please inform how we are going to deliver them???”

The flame and gas detectors were not in the event referred to in the shipping documentation for Ship 3. They were, in fact, placed on the crane structure but were not declared on the basis that they should have arrived on Ship 2.

There were then problems with Ship 3 on its arrival in Astrakhan on 11 November 2008 when it was sent straightaway to ACCP, the customs port. The difficulty was that having, on paper, already imported all of the flame and gas detectors into Astrakhan, it was necessary to deal with the 2 flame detectors and 2 gas detectors left in Gorinchem.

In an email to Mr Brouwer on 12 November 2008 Mr Knibbe outlined the problems with the customs for Ship 3. He also said:

“Lukoil have seen the two flame detectors which should already have been here on the previous ship. According to me it’s part of the structure and declaration is already done. According to them this is a BIG problem, they didn’t inform me how we could solve this.”

On 28 November 2008 to speed up customs clearance Lukoil asked Bluewater to sign a declaration stating that the gas and flame detectors in Ship 3 had been shipped by mistake and did not belong to Lukoil.

On 5 December 2008 Bluewater wrote to Lukoil setting out the position on the supply of flame and gas detectors and saying that the packing list for Ship 3 was incorrect in relation to gas and flame detectors.

On 5 January 2009 Bluewater wrote to Lukoil warning that if the gas and flame detectors were not installed then neither DNV nor RMRS would issue a final release certificate.

On 28 January 2009 Lukoil said that 13 flame detectors and 2 gas detectors had been cleared by customs on the arrival of Ship 2 and that “custom clearance of the flame detectors (2 off) and gas detectors (2 off) disassembled from the crane structure and which are currently stored at ACCP is the responsibility of [Bluewater].”

On 15 February 2009 Lukoil informed Bluewater that it would carry out customs clearance of the two flame detectors and the two gas detectors.

Bluewater says that it was not responsible for the issues causing delay relating to Ship 3 at Astrakhan. Bluewater says that the flame and gas detectors should have been shipped earlier in Ship 2 but for some reason Mercon attached them to the crane on ship 3 and it was as a result of this that these items were held in customs and further customs difficulties were experienced. Bluewater says it was errors for which Mercon was responsible which led to the detention of the flame and gas detectors by customs.

Mercon accepts that it made an initial mistake in showing the wrong number of flame and gas detectors on the Bill of Lading for Ship 2 but it says that Bluewater failed to deal with it honestly or properly with the result that Bluewater created a major customs problem. Mercon says that when this problem came to the attention of Bluewater after Ship 2 had transited through St Petersburg but while it was still en route to Astrakhan, the obvious and honest response to the problem would have been to amend the bill of lading, or otherwise to disclose the correct quantities, prior to clearing the goods through customs.

Mercon accepts that it was primarily responsible for drawing up the bill of lading and that it would be responsible for the consequences of the need to amend the Bill of Lading or to make disclosure to customs because of the mistake in the Bill of Lading. However, Mercon says that Mr Heij of Bluewater with the blessing of Mr de Geus decided to do nothing and keep the documents as submitted.

The initial problem arose on Ship 2 when, although 13 flame detectors and 2 gas detectors were not part of the shipment, Mercon prepared the relevant shipping documentation showing that they were. In fact only 7 flame detectors were shipped on the deck section loaded on Ship 2. When that was discovered, Ship 2 had passed St Petersburg and was en route for Astrakhan. It is evident that it would have been better to adopt the first option in Mr Heij’s letter of 11 September 2008, with no doubt the consequent difficulties which would then have been caused on arrival of ship 2 at Astrakhan. It is accepted by Mercon that it would have been responsible for the consequences if that approach had been taken by Bluewater.

It is evident that Bluewater decided that it would be better commercially to take the easier but less honest route of leaving the documents as they were and hoping that there would be no problems. That strategy worked and there appears to have been no suggestion at the time from Mercon that Bluewater should have taken any other course. There was no provision by Mercon of amended documents to correct the mistake, for instance. In the event there was no problem with the shipment when it reached Astrakhan and the discrepancy did not come to light. On my reading of the letter of 19 September 2008 Lukoil were aware of the discrepancy and the concern it raised related to problems with customs which did not transpire.

The problem was that the documentation showed that 13 flame detectors and 2 gas detectors had already been imported into Astrakhan on Ship 2 when only 7 flame detectors had actually been shipped on that vessel. The particular problem was that Mercon still had 2 flame detectors and 2 gas detectors in the Netherlands which were needed at Astrakhan and which the documents showed had already been delivered. In my judgment the difficulty with the inconsistency between the number of detectors and the documentation in relation to Ship 3 was, as a matter of causation, the result of Mercon’s initial mistake made in relation to the packing list for Ship 2. Whilst Bluewater might have taken steps to obtain amended documentation from Mercon when it became aware of the error, it did nothing and Mercon similarly did not seek to intervene. The causative potency of the original error was not therefore altered by what either Bluewater or Mercon did.

What Mercon then did was to fit the detectors onto the crane being shipped on Ship 3 but prepare documentation which did not show those items on the packing list. Mercon were clearly aware of what was being done and did not raise any concerns and, as can be seen from Bluewater’s internal email of 16 October 2008, taking the items off the packing list was something which Bluewater, at the very least, knew about and encouraged. It was therefore actions taken by Mercon as a result of the mistake it had made with the shipping documents for Ship 2 which foreseeably led to the difficulties which then occurred when the crane with the detectors arrived in Astrakhan without the necessary documentation. Mercon might have insisted on preparing documentation which showed the detectors in which case the causative potency of the original error in respect of Ship 2 would have ceased. Instead they took action which itself caused or contributed to the difficulty and maintained the causative potency of the original error.

If the inconsistency had not been noticed when the detectors arrived in Astrakhan then the dishonest strategy would have worked. However the discrepancy came to light and the detectors were retained in the ACCP area until they were finally released after 16 February 2009. I consider that, as a matter of causation, this was the result of the original error and the deliberate strategy undertaken by Mercon of fitting the detectors on the crane but not including them in the documentation. The correspondence shows that Bluewater then tried to overcome the difficulty with Lukoil until, in the end, the detectors were successfully released.

On that analysis I consider that, as a matter of causation, it was Mercon who was responsible for the continued detention of the detectors in the period up to February 2009 and Mercon’s inability to carry out the installation of the detectors was a matter for which it was responsible and for which it was in default at 23 January 2009. Having done nothing and being able to do nothing in relation to the installation of the detectors, I do not consider that the schedule prepared on 30 January 2009 amounted to compliance with the obligation under Clause 30 to “immediately commence and thereafter continuously proceed with action satisfactory to BLUEWATER to remedy such default.”

Accordingly, Bluewater was entitled to come to the conclusion that Mercon’s action was not satisfactory and therefore issue the Notice of Termination on this ground and terminate under Clause 30. Bluewater’s subjective view that the action taken by Mercon was not satisfactory is not affected by anything which comes within the limitations on the exercise of that discretion.

In the pleadings and the witness statements of Mr Knibbe and Mr Wickerhoff a number of the other items referred to in the Notice of Default were referred to and some were covered in oral evidence. Neither party addressed all of the outstanding work issues.

Bluewater submits that demonstrating that Mercon was and remained in default of the main items is sufficient to justify termination. It submits that if Mercon were not in default in respect of a small number of items, that would not show that Bluewater was wrong to terminate.

Mercon submits that the validity of termination would not turn on the other relatively minor items which were all planned for completion in a short period at the end of February 2009. If Mercon was not in default in relation to the major items or had presented a satisfactory remedial plan for them, then it submits that, even if Mercon might have technically been in default in respect of the other items, it is difficult to see how Bluewater could properly have terminated based on those items alone.

I have considered the various items which are referred to and do not consider that they affect the views that I have taken on termination based on the main items. For completeness I deal with some of these other items.

Bluewater says that, in any case, in respect of a number of the items disputed in his witness statement, in his oral evidence Mr Wickerhoff accepted that Mercon could have been carrying out the works in January 2009. They refer to OWL-TS4.1 (Modified lead block support) and E&I works PL-CC3.1 (Heat tracing on spools), PL-TS3.1 (Install and flush tubing between Swivel and drain tank on HCD) and PL-TS3.2 (Hydraulic grease tubing to be flushed). Mercon says that these were all minor items and were included in the 30 January 2009 plan withdurations of not more than three days to be carried out in February 2009 and that this should have been satisfactory to Bluewater. These were items of work where Mercon was in default by 23 January 2009 and failed then to carry out any work as a result of the notice or by 3 February 2009. The failure to carry out even these minor items reinforces the findings I have made above.

In relation to OWL-CC2.1 (Re-install bellow seals) Bluewater says that Mr Wickerhoff’s evidence was that Mercon did not install the bellow seals because he did not understand, when Bluewater wrote “install bellow seal” in the Notice of Default, that Mercon was required to install the updated bellow seal, and not the obsolete one. Bluewater says that it should have been obvious to Mercon which seals were to be installed but Mr Wickerhoff relied on the fact that the Notice of Default contained the reference to the obsolete SIs. However, Bluewater says that the table obviously referred to the seal which had physically been provided to Mercon. Bluewater says that failure to complete this item also meant that Mercon was unable to test the watertight floor (OWL CC 1.1) and remove the drain hose (OWL-CC2.4).

Mercon says that it was not reasonable to have required Mercon to have carried out the test by 23 January 2009 when the latest version of the bellow seal had only been delivered to Mercon on 16 December 2008, any instruction had been given only on 6 January 2009 and freezing weather conditions meant that the watertight floor test could not practicably be carried out. Mercon submits that the remedial action proposed by Mercon was to carry out the test between 20 and 28 February 2009 and should have been satisfactory.

It was clear what bellow seals were required to be fitted, certainly after 6 January 2009 if not before and again Mercon’s failure to carry out even these minor items reinforces the findings I have made above.

In relation to OWL-CC2.3 and TS2.1 (Replace deluge nozzles) Bluewater refers to Mr Wickerhoff’s evidence that Mercon could not install the nozzles because it did not have all the requisite nozzles but says that this is not mentioned in the documents at the time, including the Outstanding Works List compiled by Mercon after termination to identify items Mercon had been prevented from completing. Bluewater says that Mr Knibbe’s evidence that the site instruction was made by someone based in Holland who was not aware that the nozzles had already been brought to site, should be accepted as should his evidence that the nozzles were available from 16 December 2008 at Mercon’s site office.

Mercon says thatBluewater issued a site instruction on 18 December 2008 for the fitting ofreplacement deluge nozzles and the issue is whether those nozzles were in fact supplied. Mercon says that the site instruction itself states that the nozzles would not be available until New Year 2009 but Mr Knibbe said that they were on site on 15 December but was more equivocal in cross-examination. Mercon says that Mr

On this issue I prefer Mr Knibbe’s evidence which I found to be more convincing and is consistent with the contemporary documents produced by Mercon. Again the failure by Mercon to carry out even these minor items reinforces the findings I have made above.

For the reasons set out aboveBluewater validly terminated the Contract on or about 3 February 2009 under Clause 30 of Section 2(a) of the Contract.

Mercon puts its case on extension of time in two alternative ways. First, it says that the delay to Milestone C9 so that load out would only occur in June 2009 entitled it to an extension of time to Milestone C6 up to June 2009. Alternatively, it says that because of delays caused by matters for which Bluewater was responsible it was, in any event, entitled to an extension of time.

There is a threshold question as to whether the Contract provides a mechanism for extensions of time. For the reasons set out below where I have analysed Clauses 14.2 to 14.7 of the Contract in more detail, I consider that the ability of Mercon to request and Bluewater to give a Variation under Clause 14.2 includes an adjustment to the Schedule of Key Dates, which are the dates for completion of the Milestones. The dates for completion can therefore be extended by Bluewater. The grounds for such an extension are broad but, importantly, as explained below, Clause 14.2(c) shows that Mercon is entitled to receive a Variation to cover any instruction, decision or act of Bluewater. It follows that there is a mechanism for extensions of time under the Contract by way of the adjustment of the Schedule of Key Dates.

It is therefore necessary to consider, first, the position in relation to delay to Milestone C9.

Mercon submits that Milestone C9 could not be undertaken without the necessary vessel for load out and that, under the Contract as revised by VO-005, the date for C9 load out was 15 September 2008. It says that it is common ground that the SYMS components were not ready for final load out on that date but that it is also indisputable that no vessel was provided for load out on that date, nor could or would there have been, as Lukoil had decided and on 17 January 2008 had communicated to Bluewater its decision to defer the final load out to 1 June 2009. On this basis Mercon submits that the operative and only cause of the delay to C9 was Lukoil’s decision that no vessel would be provided for final load out until June 2009 and that Bluewater has not established that Mercon could not have achieved the revised C9 Milestone of 1 June 2009 because of matters for which Mercon were responsible. Mercon submits that Milestone C9 would not be achieved until June 2009 through no fault of Mercon and so any delay to Milestone C6 would have no causative effect.

Bluewater submits that the correct analysis is that a storage activity was inserted between the completion of Milestone C6 and the start of Milestone C9. On this basis Bluewater says that the critical path runs through completion of the structure (C6) into storage and then to load out (C9) and that the delays to completion of C6 were the actual cause of delay to the critical path of the project. It submits that this causes delay to progress of the works towards achieving C9 but there is then further delay caused by the requirement to store the structure. On this basis the delay to the completion of Milestone C6 and the delay to the Milestone C9 run consecutively.

Bluewater submits that on this project the Milestones are broadly linear so that delays to a preceding Milestone cause delay to a following Milestone. On this basis Bluewater says that the approach of the planning experts has therefore been to assess delay to a later Milestone by taking the accrued delay to the preceding Milestone and adding the additional delay to the succeeding Milestone. It says that this approach was applied consistently by the planning experts up to Milestone C6 but that Mr Cookson then changed his approach and ignores the accrued delays to C6 when assessing the cause of delay to C9.

In relation to delay to load out caused by the instruction to carry out storage after the completion of Milestone C6 because Milestone C9 could not commence until 1 June 2009, I do not see that this affects the position in respect of delay to Milestone C6 which had not been completed before termination. Milestone C9 was dependent on the completion of Milestone C6. In order to load out the integrated SYMS under Milestone C9 it was necessary for the integrated SYMS to be “ready for Load-Out” under Milestone C6. Once there was an integrated SYMS ready for load out then it would only be at that stage that an instruction to store the integrated SYMS would cause a delay to the load out of the integrated SYMS under Milestone C9.

Equally in the absence of a vessel to load out there would then be a delay to load out. However, unless and until there was an integrated SYMS ready for load out there would be no delay to the subsequent Milestone C9 caused by the absence of a load out vessel or the need for storage in the meantime. Until the time had come for load out by having an integrated SYMS, any operations which might then affect load out for Milestone C9 would not be an operative cause of delay. They would not delay the completion of Milestone C6 and until Milestone C6 was complete whilst they may be predicted to cause delay to Milestone C9 they would not actually do so until the time when it was possible to commence Milestone C9 had arrived. For instance, it may be that Lukoil would change its mind and make a vessel available and it was only when

On that basis, because the instruction to carry out storage and/or the absence of a load out vessel until 1 June 2009 had not impacted on the work necessary to complete Milestone C6 by February 2009 so as to be causative of delay by the date of termination, I do not consider that Mercon can rely on a cause of delay which would only impact on Milestone C9, after completion of Milestone C6. It follows that I must now consider whether Mercon can establish grounds for extension of time based on its alternative delay claim.

Mercon’s alternative delay claim is made on the basis that it is entitled to an extension of time up to and beyond the termination date because of delays to the Works which were caused by Bluewater. Mercon contends that it is entitled to an extension of time, essentially due to three causes:

Mercon says that by Clause 5.1 of Section 2(a) of the Contract, Bluewater had to provide materials and equipment in accordance with the dates set out in Section 7 of the Contract. It refers to Attachment 7A which, in respect of the provision of all AFC drawings, gives an early delivery date of 1 June 2007. Mercon says that it could not reasonably be expected to plan its resources for the varied works without the critical information from Bluewater. It says that the information about the variation to the scope of the works was not provided in any coherent way but was given sporadically and in an ad hoc fashion.

Mercon says that under Clause 2 of Section 6 of the Contract Bluewater was required to provide it with copies of drawings, specifications and other documents mentioned in Attachments 6A and 6B “in sufficient time to support the MILESTONE SCHEDULE” and that it could not be expected to programme or prepare for the additional work accurately and prospectively when the re-design information was produced in a haphazard and unplanned manner. It also says that this explains why the Baseline Schedule contained errors.

Bluewater accepts that the Fabrication Drawings were not completed and accepted by 1 July 2007 but says that this did not have any impact on the Works, which started before the drawings were finalised. It also says that Mercon did not require all of the AFC drawings to achieve Milestone B2, the start of fabrication.

Bluewater also says that Mercon’s delay analysis relies on long delays to the front of the works in 2007 caused by Bluewater’s alleged failure to provide RFC drawings on time, followed by periods of mitigation during fabrication or small incremental delays. Further it says that Mercon’s claim that it was delayed in completing the Works by the late provision of drawings has never been fully particularised and Mercon has not identified which changes to which drawings caused it to be delayed in carrying out the Works or for how long.

Bluewater says that Mercon’s claim is based on a theoretical analysis advanced by Mr Cookson not on the facts of what happened during the works or what impact the late drawings had on the progress of the works.

As a result of the agreement of the Baseline Schedule, Bluewater submits that delays prior to 31 December 2007 are irrelevant and Mercon’s only entitlement to an extension of time would be in relation to any changes to drawings which occurred after January 2008.

Bluewater says that, consistent with the factual evidence from Mercon’s own witnesses, the late release of RFC drawings did not cause delay to the Project against the Baseline Schedule. Bluewater says that the same is true of Mr Cookson’s analysis of the fabrication stage, leading up to load out under Milestones B4.1, B4.2, and B4.3, when he says that fabrication was broadly a period where delays were mitigated. Bluewater says that this is not consistent with the evidence of Mercon’s witnesses who stated that there were issues which caused delay during fabrication.

Bluewater says that fabrication started on 18 September 2007 and that, by reference to the contemporaneous documents, Mercon was not apparently ready to commence fabrication in Gorinchem earlier than that date. In particular, Bluewater refers to Mercon’s letter of 18 September 2007 in which it confirmed that after delivery of documents the previous Monday, it had reached agreement to start the fabrication in the yard at Gorinchem as from that date. Bluewater says that Mercon did not say that the Works had been held up by the late issue of the fabrication drawings or design changes, but instead by its own readiness.

Bluewater notes that when Mr De Jong joined the project in March 2008 there was no suggestion that there was some 254 days delay to the Yoke, as now alleged and the March monthly report showed a delay of just 19 days.

As Bluewater accepts, it did not complete its obligation under Milestone B1 by 1 July 2007. Milestone B1 is in the following terms: “Completion and acceptance of Fabrication Drawings of complete Central Tower, including Mooring Turntable, Pig Receiver Deck, Hose Turntable, Yoke Arm and Ballast Tank.”

However Mercon has not properly analysed what, if any, delay to the fabrication work was caused by the delay in producing the AFC drawings. Mr Cookson’s analysis is purely a theoretical exercise and does not consider what actually happened. First, from the contemporaneous documents, it is evident that Mercon were not ready to commence fabrication until 18 September 2007 and therefore were not, in fact, delayed by the absence of drawings.

Secondly, Milestone B2, the commencement of fabrication, did not depend on the completion of Milestone B1 as it was not necessary to have all the AFC drawings to make a start on fabrication. Thirdly, there is nothing to show that at the time in July 2007 when drawings were to have been provided there were large delays to the works which were then caught up during the fabrication phase. Further, the factual evidence

It follows that I do not consider that Mercon has established that Bluewater’s admitted delay to Milestone B1 has caused any delay to the start or progress of fabrication which would otherwise have entitled Mercon to an extension of time.

Mercon also relies on revisions to the drawings which were issued by Bluewater. Again Bluewater says that Mercon’s case on revisions to drawings is based on the fact that there were a large number of revisions. It says that, as he accepted, Mr Cookson did not analyse whether a particular drawing revision caused delay to the Works which entitled Mercon to an extension of time.

Bluewater submits that, as stated by Mr Illingworth, it is necessary to consider any revision to a drawing to decide if it may have had an impact on progress. First, it says that there were revisions which did not have design changes but were revisions to mark a stage in the approval process such as DNV approval. Secondly, that there were some with minor modifications or revisions relating to platforms, gratings or similar matters which would not have caused significant delay. Thirdly, that there were also revisions due to Technical Queries, Site Queries, etc. which were linked to actual progress. It submits that, unless the actual drawings are analysed, it is not possible to conclude what, if any, impact a drawing revision may have had.

Bluewater also refers to Clause 2.5 of Section 5 to the Contract which provided for payment “if the Contractor can [prove] the related work has been fully completed and if any Changes to the Approved for Construction drawing (rev2 and above) have been made”. The relevant rate for new drawings above revision 1 was €200 as set out in Attachment 5C to the Contract.

Bluewater therefore says that the Contract provided a mechanism for compensating for such changes and that this provision was operated by the parties and given effect in VO-003. Bluewater says that in each of the revisions of VO-003, up until revision 6 on 27 November 2008, Mercon did not dispute that the time impact of the revised drawings was “NIL”. Bluewater says that it was not until that time, after the date for completion of Milestone C9 had passed, that Mercon began objecting to this but Bluewater says that this was too late to comply with the provisions of Clause 14.3. Bluewater says that in Mercon’s Amended Further Information they rely on 375 revisions beyond Revision 1 and that VO-003 covers 371 drawings and so includes the vast majority of the drawing revisions.

I accept Bluewater’s submissions. It does not follow that, because a drawing has a different revision number, the revised drawing will have caused delay to Mercon’s progress. Again, the question of any delay caused by revised drawings must be the subject of an analysis which establishes that the particular revision caused delay. Mercon has not sought to deal with the case on that basis and I do not consider that, without such an analysis, it is possible to come to a conclusion on what delay, if any, might have been caused.

Bluewater exercised Option 5 in the Contract on 29 March 2007. This transferred responsibility for transportation from Gorinchem to Astrakhan and Baku from Bluewater to Mercon. The exercise of Option 5 was formalised in VO-005, the final revision of which was produced on 20 June 2008. This extended several of the Milestone Dates and, in particular, for Milestone B4, ready for load-out, this became three Milestones (B4.1, B4.2 and B4.3) one for each Ship and there was an extension of time of between 51 days and 122 days, the date for Ship 3 being changed from 15 April 2008 to 15 August 2008.

Both party’s experts are in agreement that there were delays caused to the Works as a result of issues which arose with shipping the components from Gorinchem to Astrakhan and clearance of the components at Astrakhan. However, there are significant issues between the parties as to (i) who was responsible for the various steps involved in shipping the components to Astrakhan; and (ii) what, as a matter of fact, caused the delays to the ships and the handover of the components. Mercon says that there are two critical areas of the shipping process which gave rise to delays for which Bluewater was responsible: the production of transport documents and the provision of the ships themselves.

In relation to documents, Mercon accepts that it was obliged to deliver the SYMS components ex Gorinchem DDU following the exercise of Option 5 and this meant that it was responsible for preparing the shipping documentation. However it says that it was dependent upon Bluewater, who in turn relied upon Lukoil, for the information that was to be put into that documentation.

Mercon also says that on 20 June 2008, Bluewater told Mercon that all shipping documents had to be approved by Bluewater before issue, except for export documents for goods leaving Holland and that this affected responsibility for documentation. Mercon says that if Bluewater decided to impose a supervisory role, it cannot complain later if those documents are wrong and cause delays.

Mercon also submits that, on the basis of Mr Heij’s email of 20 June 2008 and Clause 2 of Section 6 of the Contract, ultimate responsibility for the provision of accurate and compliant shipping documents, in time to support the key dates, rested with Bluewater and therefore the delays to shipment caused by documentation defects were Bluewater’s responsibility. It further says that, in providing information to Mercon for the shipping documents, Bluewater had a contractual obligation to ensure it was provided, or checked, in sufficient time to support the Milestone dates. Mercon says that shipping was a high risk activity for which more float should have been allowed.

Bluewater says that under the Contract, including the Equipment Handover Procedure and the INCOTERMS 2000 DDU, Mercon was responsible for obtaining all documents necessary for export of goods from Gorinchem, for providing all commercial invoices, packing lists and certificates of origin, for providing documents for transit clearance in St Petersburg, for obtaining and supplying the Bill of Lading to Bluewater at Astrakhan and for preparing the original certificates of delivery and acceptance of equipment for signature by Bluewater and Lukoil.

Bluewater refers to Clause 3.2(e) of Section 2(a) of the Contract and says that it makes clear that “Any review, approval, acknowledgement and the like, by or on behalf of BLUEWATER REPRESENTATIVE, shall not relieve the CONTRACTOR from any liability or obligations under the CONTRACT.” As a result Bluewater says that nothing by way of approval of the shipping documents altered the position that Mercon was responsible for the shipping documents.

Bluewater says that Mercon had difficulties throughout in coping with the demands of transporting the components to Astrakhan and on to Baku. It says that Mercon was late in its preparations, it had little experience as to what the requirements were, and it did not pay adequate attention to the difficulties that can be experienced in transporting goods to Russia. It also says that Mercon failed to address these issues by, for example, appointing an experienced transport manager but instead sought to blame Bluewater for its difficulties.

I consider that, as appears to be common ground, under the Contract and the DDU INCOTERMS, the primary responsibility for producing the shipping documents fell upon Mercon. There is nothing in Clause 2 of Section 6 of the Contract to affect that position. Given the terms of Clause 3.2(e) of Section 2(a) of the Contract, the letter from Mr Heij of 20 June 2008 did not change that obligation. From the documentation, whilst Mr Hoep may have tried his best, he clearly did not have the expertise or specialist knowledge of commercial shipping documents. If he had had that expertise and knowledge then I consider that most, if not all, of the problems with the shipping documents would have been overcome. I do not think that Mercon can properly assert that any of those problems were the responsibility of Bluewater.

With those observations I now turn to consider the causes of delay, first to the B4 Milestones and then in the course of the shipments themselves.

The B4 Milestones were for load out of the pre-assembled units and ship loose items including sea fastening and required a warranty survey to be issued. “Load out” is defined in Section 3 of the Contract as “the physical movement of items from shore onto/into the Barge/Vessel”. The date for Milestone B4 of 15 April 2008 was extended to 15 June 2008 for B4.1, 15 July 2008 for B4.2 and 15 August 2008 for B4.3.

Mercon says that load out of the Central Column and sea fastening was certified by LOC on 20 June 2008 and although Bluewater did not issue the certificate for B4.1 until 26 June 2008, B4.1 was substantially achieved on 20 June 2008. It says that the lay time calculation indicates that loading and securing was completed on 24 June 2008.

Mercon says that Ship 1 arrived at Gorinchem on 16 June 2008 and 4 umbilicals were to be shipped as part of the ship loose cargo but on 20 June 2008 Mr Hoep told Bluewater that one was still missing and the ship could not leave without it. It says that completion of load out of the vessel was delayed to 24 June 2008 whilst Bluewater delivered the umbilical.

Mercon says that there were 217 hours of lay time at Gorinchem between the arrival of the vessel on 16 June 2008 and its departure on 27 June 2008 and this was caused by a combination of delays to sea fastening lashing which was not completed until 24 June 2008, problems with the delivery of the fourth umbilical and obtaining sufficient information from Bluewater to enable Mercon’s agent, Flinter/Mondial to complete the shipping documents.

Bluewater says that Ship 1 departed from Rostock on 10 June 2008 with its cargo of Piles and arrived at Gorinchem on 16 June 2008, one day late to Milestone B4.1 and that this is not alleged to be Bluewater’s responsibility. It says that Ship 1 did not then depart Gorinchem until 27 June 2008.

Bluewater says that Mercon alleges that it was awaiting information from Bluewater, specifically approval of the Bills of Lading but Bluewater submits that the Bill of Lading was Mercon’s responsibility as under INCOTERMS 2000, DDU, A8: “The seller must provide the buyer at the seller’s expense the delivery order and/or the usual transport document (for example a negotiable bill of lading…) which the buyer may require to take delivery of the goods in accordance with A4/B4”. Bluewater also refers to the fact that Mr De Jong accepted that the bill of lading was the responsibility of Mercon.

Bluewater refers to an email exchange on 12 June 2008 which suggested that Mercon would use the vessel as a means of applying pressure to Bluewater. It also refers to the fact that on 16 June 2008 Flinter said that they must have confirmation of acceptance of additional costs of €85,000 for calling at Baku before the departure of the vessel, then planned for Friday 20 June 2008. Mercon passed this onto Bluewater, saying initially that the amount was €115,000 and that if Mercon did not receive the money, the vessel would not leave.

Also Bluewater refers to the fact that on 19 June 2008 Mr Hoep was still asking Mondial what information it needed to “make/finalize the export documents and the B/L?” Mr Heij then sent Mr Hoep the “crash course” in shipping on 20 June 2008 and on 23 June 2008 Flinter made a further request for documents which Mr Hoep passed onto Mr Heij. Bluewater says that by this stage, Mercon had not asked Bluewater for invoices for Bluewater supplied items such as the umbilicals and Mercon had not provided invoices for its own scope of works and so the vessel was not ready to sail at this stage.

In relation to the questions put to Mr Illingworth to the effect a letter showed that an umbilical from Bluewater was holding up the ship, Bluewater says that this was not part of Mercon’s pleaded case or as put to factual witnesses. Bluewater says that it replied to this letter the same day by email but there was no evidence from either party as to when the umbilical was provided because it was not an alleged cause of delay.

On 24 June 2008 Flinter wrote to Mr Hoep trying to get the Bill of Lading right and Mr Hoep then responded. Flinter said: “B/L should read: 1 lot stc (said to be) 11 packages: 1 column and 10 pipes.”to which Mr Hoep responded:“Is this an advice? Or a question. What I see on the B/L about 1 lot equipment as per con…, does this come from Bluewater? Or is this something Flinter likes to see on it?”

Mr Hoep also included the following comments: “I adjusted the invoice for Astrakhan (without winches) to the new weights. Can you then use this also for the B/L? and “I hope somehow that everything is now right, but I am ready for the next list with questions.”

On 26 June 2008 Flinter wrote to Mercon saying: “This is to inform you that the a.m vessel is not able to sail today from Gorinchem. This is because of the fact the orig. B/L’s for the cargo loaded in Rostock for Astrakhan had to be amended according to your latest instructions.” Bluewater refers to Mr De Jong’s acceptance that a problem with the cargo loaded in Rostock leading to the bill of lading having to be amended before the vessel could leave Gorinchem was the responsibility of Mercon.

Bluewater says that it was difficulties with the Bill of Lading for which Mercon was responsible that caused the delay and not something for which Bluewater was responsible meant that Milestone B4.1 was not met.

Ship 1 arrived one day late at Gorinchem and Mercon does not say that this was Bluewater’s responsibility. Whilst one umbilical was replaced because it was damaged that was not something which held up the achievement of load out. The letter of 20 June 2008 was evidently written by Mercon with a view to seeking to put some responsibility for the delay to B4.1 onto Bluewater. In fact, as the other documentation shows Mr Hoep was still trying to understand what was required by way of documentation and then obtain it. That was clearly the cause of delay and was not something that Bluewater were responsible for.

In so far as he was requesting further documentation from Bluewater the documents show that these were new requests and the documents were provided. Any delay was therefore Mercon’s responsibility. The final delay occurred on 26 June 2008 when there were difficulties with the Bill of Lading for the cargo loaded at Rostock, which again was a matter for Mercon. Ship 1 was therefore only able to sail on 26 June 2008.

In relation to the laytime calculation, as set out below, Mercon claims demurrage charges which it incurred under the terms of the Charterparties based on shipping delays caused by matters outside its control. Mercon refers to VOR 075 rev 4 which was incorporated into VO-005 and says that the parties agreed time allowances for discharge (48 hours) and customs clearance (24 hours) and a daily rate for demurrage. On this basis Mercon says it is entitled to be compensated for demurrage where the laytime arose from causes outside its responsibility. It says that Bluewater accepted this principle when it confirmed its liability to Mercon for 95 hours’ demurrage to Ship 1 in Mr Brouwer’s letter dated 28 August 2008.

Bluewater accepts that VOR-075 excluded demurrage costs from the Lump Sum amount but stated that the Lump Sum price includes “Time allowance for loading 48 hrs per shipment”, “Time allowance for Discharge 48 hrs per shipment” and “Time allowance for Customs clearance is 24 hrs.”

Bluewater refers to Schofield on Laytime and Demurrage (6th Edition) and says that demurrage only applies to delays during the loading or discharging operation and that delays during the voyage are the ship owner’s risk. Further it says that, whilst the Charterparties between Mercon and the Shipping Agent provide that laytime is 48

Bluewater says that demurrage stops running once loading and discharging stops and that any delays incurred after this point are not demurrage and should not be passed onto Bluewater by Mercon as they fall within the Lump Sum in VOR-075. If the ship is delayed due to reasons for which Mercon as the charterer is responsible during the loading/discharging operation, then the remedy for the shipowner is damages for detention which the owner must prove and cannot claim demurrage. Finally, Bluewater says that if, as a matter of fact, the reason the Ship took longer to load at Gorinchem, or discharge at Astrakhan was due to defaults on the part of Mercon as set out in the delay section and says that Mercon cannot pass these on to Bluewater as demurrage as, but for Mercon’s actions, these costs would not have been incurred.

In relation to Ship 1, there is a claim for demurrage at Gorinchem on the basis that laytime commenced on 16 June 2008 and the total time claimed, including Rostock, is 217 hours through to 27 June 2008.

Bluewater says that the entire allowance of a 48 hour laytime period in Gorinchem was taken up by the crew having the weekend off: “no work – time to count” and delay caused by this is not something it can seek to recover from Bluewater.

Bluewater also says that charges incurred after loading has completed are not demurrage and therefore should not be passed onto Bluewater. In particular it says that it was not responsible for the period from 24 June to 27 June where loading had been completed and the ship was “waiting for documents” and “awaiting confirmation to sail” and “awaiting letter of indemnity” when Mercon had difficulties in finalising the documents for Ship 1 prior to sailaway in Gorinchem. As a result, Bluewater says that, of the 217 hours of demurrage claimed, including loading in Rostock, at the very most 101 hours are legitimately demurrage claims but Mercon has not explained why the loading took so much longer than intended and so this claim should be disallowed.

I have considered the laytime calculation and also the calculation produced by Mr Brouwer in which he accepted 95 hours of demurrage. It is clear that there is no claim for the period of 6:45 hours taken at Rostock. At Gorinchem laytime commenced on 16 June 2008 at 13:00 and loading commenced on 19 June 2008 at 00:00. Loading was then completed on 24 June 2008 at 12:00 but no loading took place on 21 or 22 June 2008. From 24 June 2008 at 12:00 until 8:00 on 27 June 2008 the ship was waiting documents, a letter of indemnity and confirmation to sail. Whilst Mercon may be liable to pay demurrage under the charterparty and, in my judgment, the payment provisions in VO-005 entitled it to recover for time in excess of 48 hours if it was not caused by its fault, that does not give grounds for an extension of time under the Contract unless it can be shown that delay was caused by a matter which arose because of an instruction, decision or act of Bluewater.

There is no period of delay which, by reference to the laytime calculation and as I have found above, arose because of an instruction, decision or act of Bluewater. There was a period from 16 June 2008 at 13:00 until 24 June 2008 at 12:00, excluding 12 and 22 June 2008 when I consider there was, subject to the 48 hour allowance, a period when demurrage was applicable. After 24 June 2008 at 12:00 all the delay was caused by Mercon and the need for the necessary documentation to be produced. It follows that Mercon is entitled to demurrage of 191 hours from 16 to 24 June 2008 less 48 hours (21 and 22 June 2008) less 48 hours, which gives 95 hours which accords with Mr Brouwer’s calculation. At €4,500 per day the demurrage is €17,812.50.

I therefore do not consider that Mercon has established an entitlement to an extension of time for the 11 day delay from 15 June to 26 June 2008.

Key Milestone B4.2 relates to the load-out of Ship 2 which contained the Topsides and containers from Gorinchem and was to be completed by 15 July 2008.

Mercon says that Ship 2arrived at Gorinchem on 7 August 2008 and that LOC certified load out on 18 August 2008 but Bluewater certified load out on 21 August 2008. It says that B4.2 was substantially achieved on 18 August 2008.

Mercon says that the delays to the Topsides were caused by 225 days critical delay as a result of the late release of drawings, further problems with the Main Bearing Support Ring (MBSR) and 13 days critical delay arising from the decision by the Ship’s Master to revise the weight distribution of the cargo on deck.

Mercon says there were 225 hours of lay time at Gorinchem caused by concerns expressed by the master about weight distribution and loading plans on the vessel following the revisions needed to achieve the height restrictions for the HCD, delays in receiving Bluewater’s approval of shipping documents and problems with the presentation of the flame and gas detectors on the shipping documents.

In Mercon’s Opening it said that it was “impossible for Mercon to load out the Topsides by 15 July 2008 as Bluewater had failed to provide, in sufficient time, design information that was essential to the fabrication and assembly process. It refers to VOR-018M issued in respect of a lifting frame on 15 April 2008 and says that Bluewater was warned that late approval of this VOR would delay the transport schedule.

Mercon says that the delays to load out arose out of the Ship’s Master’s dissatisfaction with the weight distribution of the cargo following alterations to the hose connection deck that had been required to achieve the Russian inland waterways height restriction, including the need to carry more ballast. It says that Flinter advised Mercon of this on 10 August 2008. As a result the cargo had to be re-arranged, which led to a delay to load out to 18 August 2008.

Bluewater says that Key Milestone B4.2 was achieved on 21 August 2008 when the relevant Certificate of Release was signed. This was 37 days late.

Bluewater says that the experts consider that fabrication was completed on 8 August 2008 (Mr Cookson) or 1 August 2008 (Mr Illingworth). The difference is in relation to pre-commissioning works which were being carried out in early August 2008 which Bluewater says was done because Ship 2 was not ready yet.

Bluewater says that Mercon’s reference to the VOR issued in respect of a lifting frame on 15 April 2008 is not relevant. Bluewater says that the relevant VOR dealing with the lifting frame was VOR-108 which became VO-12 and was agreed in December 2008 as having a nil time impact and was signed off by Mercon.

Bluewater says that the Baseline Schedule shows that the turntable was planned to be completed ready for integration by 10 April 2008, and that the machining of the MBSR was to start on 4 February and finish on 29 February and that the MBSR was required to be completed before the turntable was ready to integrate with the Pig-Receiver Deck which was planned to be completed on 5 May 2008. Bluewater says that there was a period of float between 10 April 2008 when the turntable was planned to be ready and 5 May 2008 when it needed to be ready for integration.

Bluewater says that originally Mercon said that there was a 42 day critical delay between 1 January and 11 February in relation to the start of machining of the MBSR but that since the machining was only ever planned to be commenced on 4 February 2008, it was at most 7 days late and Mr de Jong said that his recollection was that the start of machining of the MBSR would not have been critical for the works in Gorinchem. Bluewater says that the as-built schedule shows that the turntable was completed ahead of the completion of the Pig-receiver deck on 24 April 2008 and therefore there was no delay caused by the MBSR.

Bluewater says that fabrication of the Topsides was complete, except for precommissioning, by 25 July 2008 and that from that date to 8 August 2008 precommissioning works were taking place on the Topsides. Bluewater refers to the fact that, as recorded by Mr Illingworth, this further work was minor fit-out and follow on works, which could have been carried out during integration at Astrakhan.

Bluewater refers to Mr De Jong’s evidence that Mercon was pre-commissioning between 25 July and 8 August “while we were waiting for the platform” and that “there was a long period where we were doubting whether Bluewater would wish us to delay the second vessel in order to trial fit [the Yoke Hinge].” Bluewater says that the trial fit of the Yoke Hinge was something that Mercon was required to carry out under the Contract and that it instructed Mercon to carry out in Gorinchem. Bluewater says that Mercon was responsible for the delays in completion of the Yoke Hinge, and if delays were caused to Ship 2 by it then this is a matter for which Mercon is responsible. However Bluewater says that Ship 2 was not in Gorinchem in time for the completion of the Topsides and was not ready to depart until 22 August 2008, 21 days after the units were available.

Mercon says that the delay to Ship 2 was due to the split in the Topsides but Bluewater says that given the amount of time Mercon had to plan for Ship 2 in the knowledge that the Topsides would be split, this should not have caused delay. It refers to Mr De Jong’s evidence where he accepted that split had been known about in December 2007, the structures had been fabricated by April 2008 and the weight and centre of gravity did not change after that. Bluewater also refers to an email at the time in which Mercon blamed its agent, Flinter. Mr de Jong wrote this: “I am astounded and have now been obliged to accept that the planned load out of the ship was not started on Saturday and cannot proceed any further on Monday (morning) either. This causes us some substantial financial loss and delay to the project.” Bluewater says that it then took until 20 August 2008 for the new revised stowage plan to be approved.

Bluewater also says that Mercon had experienced further difficulties with gathering together the necessary documents for shipping which took until after 19 August 2008 to complete. It refers to the following documents:

Ship 2 departed Gorinchem on 22 August 2008 and Milestone B4.2 was achieved on 21 August 2008. Bluewater says that there was 37 days delay to Key Milestone B4.2.

Mercon says that the Topsides were delayed by matters for which Bluewater was responsible and that this meant that Load out of Ship 2 could not happen before 15 July 2008 which was the B4.2 Key Milestone date. Whilst it is correct that the Topsides were not complete, except for pre-commissioning, until 25 July 2008, the split in the Topsides was discussed and known about in late 2007 and should not have delayed the

The evidence does not establish, in any case, that the delay in the arrival of Ship 2 from 15 July 2008 until 7 August 2008 was caused by delay in completing the Topsides. Rather it seems that the delay from 15 July 2008 until 7 August 2008 was something for which Mercon was responsible.

After load out started the Ship’s Master said that he was unhappy with the load out plan devised by Mercon due to the weight distribution. Although Mercon more recently sought to blame the split in the Topsides for this, I do not consider that to be correct. The email from Mr De Jong to Flinter shows his obvious frustration with the fact that the planned layout of Ship 2 was not started on Saturday 9 August and could not proceed on the morning of Monday 11 August when it was thought that the loading plan had been agreed but the Master did not accept it. Mercon says that, as a result of this, the cargo had to be re-arranged, which led to a delay to load out to 18 August 2008.

In parallel with this, Mr Hoep by 5 August 2008 had still not to grips with the necessary documentation and, as the documents referred to by Bluewater show, the process of obtaining the necessary documents continued substantially up to Key Milestone B4.2 being achieved on 21 August 2008.

I have considered the laytime calculation of 225 hours under which Mercon claims demurrage. Bluewater says that the demurrage claim includes periods on 21 August 2008 and 22 August 2008 for “awaiting cargo documents” which is not demurrage for which Bluewater is responsible. It says that the 24 hour period on 21 August 2008 is said to be “Lashing/awaiting cargo documents” and in the absence of evidence as to how much of this period was caused by cargo documents, this entire period should be disallowed. Bluewater also says that, as with Ship 1, there is a 24 hour period on 17 August 2008 where no work was done and this should not be passed on to Bluewater.

Bluewater says that the delays in Gorinchem were caused by the Ship’s Master disagreeing with the loading plans prepared by Mercon which is Mercon’s responsibility. This arose on 10 August 2008 and the load-in plans were not approved until 20 August 2008. Further Bluewater says that Mercon was not ready with the requisite documents for Ship 2 from 15 August 2008 until 19 August 2008. Bluewater also says that the laytime calculation shows “lashing and securing of cargo” lasting over 48 hours from 19 August 2008 to 21 August 2008 with no explanation given but, given the issues with documents in this period, it says this should be disallowed. As a result, of the 225 hours of demurrage claimed, Bluewater says that at the very most 113 hours could be claimed but Mercon has advanced no explanation as to why the loading took so much longer than intended and this claim should be disallowed.

The laytime calculation started at 07:00 on 11 August 2008 and ended at 16:00 on 22 August 2008. It is clear that a substantial amount of time was taken dealing with the load-in plans and then on 21 and 22 August 2008 waiting for documents, both of which were caused by matters for which, as between Bluewater and Mercon, Mercon was responsible. It is not possible on the evidence to identify any period when one or other of these causes was not impacting. On that basis and allowing for no work being carried

I do not therefore accept that Mercon has established any grounds for an extension of time to Key Milestone B4.2 which was 37 days late from 15 July to the relevant B4.2 date of 21 August 2008.

Milestone B4.3 relates to the load out of Ship 3 from Gorinchem and was to be completed by 15 August 2008. Ship 3 contained the yoke assemblies and the crane, together with containers. The delay experts consider that fabrication was completed on 27 September 2008 and was therefore 43 days late to Milestone B3.3 and they also agree that load out under Milestone B4.3 was not achieved until 23 October 2008 and was therefore 69 days late from 15 August 2008.

Mercon says that there were 254 days of critical delay in achieving Milestone B4.3 as a result of the late release of drawings but this delay was recovered to some extent during fabrication. It says that there were then 27 days critical delay caused by procurement of Ship 3 during the busy winter period.

One of the issues which, at one stage, formed the basis of Mercon’s delay claim, was the machining of the Yoke Hinge body. In Mercon’s Further Information in October 2012 it was pleaded that the late instruction for Mercon to commence machining works to the Yoke Hinge Body caused a critical delay from 30 January 2008 to 21 April 2008 of 83 calendar days, plus a further 42 calendar days for late construction information, giving a total of 125 days. In the Amended Further Information this section was deleted. In Mr Cookson’s Expert Report he sets out the chronology in respect of machining and states that “the root cause of the 165 calendar day delay to the achievement of Key Date B3.3 was the re-design of the SYMS, the late and fragmented release of design for the Yoke System by [Bluewater] which was carried forward from Period 1 and the late instruction to proceed with machining of the Yoke Hinge Casting on 21 April 2008.”. In Mercon’s Opening Submissions it refers to issues with the machining sub-contractor and states that Bluewater “dithered” over providing an instruction for this work. However, it does not make such a claim in its Closing Submissions.

At the hearing Mercon suggested that delays may have been caused by a lack of capacity in MRC to complete the machining of the Yoke Hinge before it did so in June 2008 together with delays caused by issues which arose as a result of comments by MRC on the designs. Reference was made to TQR 224 raised by Mercon on 13 May 2008 which led to changes to drawing LUK-M-823-DR-2325-001 which was revised on 17 June 2008.

Bluewater submits that any delays to the Works caused by the Yoke Hinge Casting were Mercon’s responsibility because, despite having all the information that the Yoke Hinge Casting required machining, it did nothing for 3 months and then possibly delayed matters for a further month whilst it sought instructions and then delayed in subcontracting the machining works. It says that the drawings for the Yoke Hinge Body and the rough-machined Yoke Hinge Body itself were delivered to Mercon by December 2007 but Mercon did not carry out any work. Bluewater also refers to Mr De Jong’s evidence where he accepted that he had an instruction to machine the Yoke Hinge body on 21 March 2008, following a telephone conversation with Mr Brouwer.

Bluewater also says that Mercon was always to machine the Yoke Hinge house, as can be seen from the Baseline Schedule, activity MS0314.1212. From that schedule, it says it is also apparent that Mercon realised it had to machine the Yoke Hinge Body – the schedule shows an activity “Machining TT Connection”. Following the changes to the design of the Yoke in 2007, the only component to which this refers is the Yoke Hinge Body.

It is necessary to consider the detail of the progress of the Yoke Hinge.

In October 2007 the machining drawings were sent to Mercon by Mr Nijboer. Mercon then sent TQ103, dated 25 October 2007, on the subject of “Machine drawings, missing info” and asked for information on “Yoke Hinge Casting: Material: According to LUKM-SP-823-2360, spec. is missing, material quality unknown. Please provide this specification in advance.”

On 29 November 2007, there was a meeting between the engineering teams of Mercon and Bluewater when machining drawings were again discussed. Following this meeting, the revised details for the Yoke End and the Yoke Hinge Casting were issued on 5 December 2007 (Rev A). These were re-issued on 28 December 2007 as RFC drawings, with no significant changes from the Rev A version.

After the issue of the Rev A machining drawing, the engineers held a further meeting on 6 December 2007. One of the issues discussed there was Mercon’s scope of machining:

“5.

Where does stop [Mercon] responsibility for the machining of structural components? For instance, the bronze rings (free-issued by Bluewater) are rough or fine machined? [Mercon] need to provide only the machining of the structural steel. Bronze bearings will be free-issued final machined, ready to install in the structure.”

The Yoke Hinge Assembly (including the Casting) was delivered free-issue to Mercon on or around 24 December 2007 and had been rough machined but required final machining. Mercon had been issued with drawing number LUK-M-823-DR-2325-001, “Manufacturing drawing yoke hinge to turntable yoke hinge body machining”. The drawings also specified “Inconel cladding” to be done after the machining was carried out.

On 21 January 2008 Mercon submitted Rev 2 of VO-003 which included the Yoke Hinge Body machining drawing LUK-M-823-DR-2325-001.

On 24 January 2008 there was a further meeting at which it was stated: “Ring thick 195mm as shown on drw. M-2326 will be machined by [Mercon] from plate thick 210.”

In the January 2008 Monthly Progress Report Bluewater notes that “Mercon have so far not subcontracted machining” and states that installation of Yoke Hinge Casting is Mercon’s responsibility.

On 29 January 2008 Bluewater sent Mercon comments on Mercon’s Weekly Progress Report for Week 3 of 2008 and asked that Mercon add the following under “Areas of concern”: “9.25 Lack of progress with respect to machining activities (Yoke Hinge Casting).”

Mr de Jong then arrived in March 2008 and said to Mr Leenheer that at a meeting with Mr de Geus that, in respect of the Yoke Hinge, he would “make it clear that they must specify what exactly they would actually like to see machined and in what manner.” On

At the weekly progress meeting on 18 March 2008 at Note 6.3 Mercon stated that the completion schedule for machining is a problem. The note states:

“[Bluewater] explained to [Mercon] that all details concerning machining were made available to [Mercon] before X-mass 2007 including the delivery of the main yoke casting to [Mercon]. [Mercon] has waited 3 months before starting the subcontracting process.”

Following a telephone conversation with Mr Brouwer on 21 March 2008, Mr De Jong sent an email “confirmation of instruction to partially execute add. machining” in which he stated “we confirm your instruction, as expressed by you during this telcon, to consider the receipt of information on the design of the yoke hinge system as an instruction to execute the referred work.” He said that he considered that the work required a Variation Order.

In reply to this email from Mr De Jong, Mr Brouwer stated:

“We are very concerned about the delayed subcontracting of the machining works for Yoke Hinge Assembly by [Mercon], furthermore we are surprised receiving such e-mail from [Mercon] at this stage of the project.

Please note that the [Mercon] notification is far too late, [Mercon] to indicate in detail what they have done to mitigate so far.

Note that the Yoke Hinge Casting is already at [Mercon] since before Xmas sufficient complete with documents allowing [Mercon] to shop around to subcontractors at that time when sufficient lead time was still available.

•

We have noted that [Mercon] have not done anything with the yoke hinge casting since its arrival at [Mercon] before Xmas.

•

We have noted that [Mercon] have not done anything with the yoke hinge document indicating the machining scope of work, that were issued before Xmas.

•

We have noted that [Mercon] started with the subcontracting process not earlier than March 2008.”

At a meeting on 8 April 2008, Mercon said that the contract with MRC to machine the Yoke Hinge was to be issued informally. On 21 April 2008 Bluewater issued an instruction to proceed with the machining and inconel welding “notwithstanding the provisions of the Agreement”with the purpose of“safeguarding the Project Schedule and ensuring that Key Date(s) are met.”

On 24 April 2008 Bluewater accepted MRC as Yoke Hinge machining subcontractor. On 9 May 2008 Mercon had a kick-off meeting with MRC and the machining of the Yoke Hinge House commenced on 3 June 2008 and of the Yoke Hinge Casting in the week of 21 July 2008.

Based on this chronology I consider that Mercon had all the information to carry out the relevant machining work together with the casting itself from late 2007 and should have proceeded with that work then or, at the very latest, by March 2008 when the instruction was given to Mr De Jong. If Mercon had proceeded with the work to the Yoke Hinge at that stage then there would not have been any delay caused. As it was they commenced work to the Yoke hinge late and this caused delay to the machining and other work needed. This delay, in my judgment, was delay for which Mercon was responsible.

Bluewater says that Mercon experienced delays in the procurement of Ship 3. Mercon sought to establish in cross examination that Bluewater tried to delay the shipping date of Ship 3 so that the surge dampening system (SDS) and pendulums could be transported on Ship 3. In relation to the SDS and pendulums, Bluewater says that Mercon had to provide Bluewater with proper notification of the vessel name and arrival windows under VO-005.

Bluewater refers to Mr Illingworth’s evidence that the crane structure was ready to sail on 3 July 2008 and the Yoke was ready on or around 27 September 2008, but Ship 3 did not sail until 23 October 2008, 26 days later.

Ship 3 was originally intended to take the pendulums and SDS, which were being manufactured in Ijmuiden, and then travel to Gorinchem for the Yoke Hinge Assemblies. As stated in a meeting on 8 April 2008:

“Shipment 3: Loading 01..16 AUG-2008, Departure TBC. [Mercon] expect that fabrication completion will be 20-AUG-2008 (ready for loadout). [Bluewater] and [Mercon] agree that [Mercon] will have close look into the following matters to determine schedule optimizations:

oIncorporation of detailed Vessel Transport Details into Schedule; oDetailing of Yoke Arm Subassembly Fabrication and critical activities; oDetailing of mitigating measures.

[Bluewater] clarified that [Mercon] shall consider closure of locks in Russian Federation, usually closing in period of 10…15-NOV each year, subject to weather conditions.”

Mercon pleads that there were delays caused by changes to the design which meant it was trying to procure Ship 3 at a busy time. Bluewater notes that, in issuing VOR-181 for the Ballast Tank Lugs on 30 July 2008, Mercon stated that “If final confirmation is provided by return then the work is foreseen to be completed in time for Shipment 3” and confirmation was provided and the Work was incorporated in VO-010.

Bluewater says that by July 2008 Mercon had not nominated a ship or provided a loading plan and, as Mr Cookson notes, under para 7.1 of V0-005-03, Mercon was to notify Bluewater of a 2 week window a minimum of 8 weeks prior to an ETA in Ijmuiden.

The Minutes of Meeting on 17 July 2008 show that Mercon was to act as soon as possible to provide the loading plan for Ship 3 and that Mercon informed Bluewater that “Vessel 3 was not ordered yet, because of fabrication and test schedule availability. [Mercon] Proposed ETA of Vessel 3: ETA Ijmuiden 19/09/08; ETA [Gorinchem] 23/09/08; ETD [Gorinchem] 10/10/08.”

Bluewater says that the notice was provided 6 days later than required under that Variation Order and that once the window was notified, it bound both parties unless a different window was agreed. The pendulums were being fabricated at Ijmuiden by another sub-contractor and Bluewater says that it planned the sub-contractor’s activities in accordance with the fact that Ship 3 would arrive in Ijmuiden on 19 September 2008.

On 30 July 2008 Mercon changed the date of departure and said:

“Mercon herewith informs Bluewater that the third vessel is expected to arrive in Gorinchem on the 10th of September. Despite earlier discussion and schedules we are strongly advised by our forwarding company to leave Gorinchem latest week 38 because of possible weather condition influence. These influences can have enormous impact on both cost and schedule. Departure of the third vessel is now expected the 19th of September.”

At the weekly minutes of meeting on 21 August 2008 Mercon said that Ship 3 had not been ordered yet and Flinter had advised that the estimated time for departure from Gorinchem was not later than 15 September 2008.

Bluewater wrote to Mercon on 27 August 2008 saying that Ship 3 was no longer required to call at Ijmuiden. It asked Mercon for the name of the vessel, the place and date of the suitability survey and the estimated time of departure from Gorinchem. Bluewater accepts that there was a delay to the pendulums for which it was responsible and, as stated above, does not claim for the additional costs of transporting the pendulums and SDS.

Mercon did not notify Flinter that Ship 3 was not stopping in Ijmuiden until 3 September 2008 and then passed on Bluewater’s request and asked Flinter for “Name of vessel #3 - Suitable place and date for suitability survey of vessel #3 - ETA of vessel #3 in Gorinchem”

At a meeting on 4 September 2008 Bluewater asked why Ship 3 had not been nominated and Mercon stated “that since then lot has changed and that arrangements with the Russian Owners is difficult to achieve.”

On 9 September 2008 Flinter reported that it was still awaiting the owner’s nomination for Ship 3, and that the Russian inland market was very busy at this time.

On 15 September 2008 Mercon informed Bluewater that “a ship has already been ordered in accordance with VO-005 and based on BLUEWATER’s repeated Instructions.” Bluewater sent further letters seeking details of Ship 3 on 15, 16 and 19 September 2008. On 19 September 2008 Flinter notified Mercon that the owners nominated the “Professor Kerichov” or its sister vessel for loading at Gorinchem on 25 September 2008.

On 24 September 2008 Bluewater emailed Mercon to say:

“BLUEWATER are extremely concerned by lack of progress, lack of confirmations and lack of information from MERCON’s side in consideration of MERCON’s notice that ETA of Ms Professor Kerichov or sister vessel at MERCON in Gorinchem was confirmed at 25 SEP 2008 on 19 SEP 2008. Since 19 SEP 2008, MERCON has not been forthcoming with alternative details nor further confirmations.

Now, being 24 SEP 2008, BLUEWATER understand from MERCON that no further information and confirmations regarding the Third Vessel can be made available until an undisclosed date, which is unsatisfactory and unacceptable to BLUEWATER.”

On 26 September 2008 Flinter emailed Mercon to state that the MV Lotus had been fixed for loading in the Netherlands on around 10 October 2008. At a meeting on 1 October 2008 Mercon said that Ship 3 would arrive on 15 October 2008 in Gorinchem, the survey could take place in Southampton. The vessel was the Ulus Prime. On 15 October 2008 Mercon advised Bluewater that the nominated vessel was now the sister vessel, the Ulus Breeze.

Bluewater submits that it is apparent from these documents that Mercon was having problems in obtaining a vessel and that this was the responsibility of Mercon not Bluewater and that, in the circumstances, the delay to B4.3 was the responsibility of Mercon. It seems that by 15 August 2008, which was the date when Key Milestone B4.3 should have been achieved, Mercon was working to an estimated date of arrival of Ship 3 of 23 September 2008 with departure from Gorinchem on 10 October 2008, the dates being given on 17 July 2008. It is not clear what had caused that date to slip but the delay experts consider that fabrication was completed on 27 September 2008 so that it seems that the date of arrival of Ship 3 at Gorinchem was delayed to late September 2008 to allow for the completion of fabrication.

As I stated above I do not consider that Bluewater was responsible for any delay to the completion of the Yoke Hinge and therefore to the extent that there was a delay to the fabrication work necessary to provide the items to be shipped on Ship 3, I am not satisfied that Mercon have established that any delay was caused by matters for which Bluewater was responsible. The delay to the arrival of Ship 3 was then clearly caused by delay by Flinter in obtaining a vessel, for whatever reason. This is clearly a matter for which Mercon was responsible. It follows that I do not consider that Mercon has established any grounds for an extension of time.

As a result there was a delay to Milestone B4.3 of 69 days from 15 August 2008 until 23 October 2008 for which Mercon is not entitled to an extension of time.

I shall now turn to consider the delays to each of the Ships.

Having sailed from Gorinchem on 27 June 2008, Ship 1 arrived in St Petersburg at 15:50 on 3 July 2008. The Ship waited at anchor until its customs documents were in order. It left St Petersburg on 9 July 2008.

In its Further Information Mercon pleaded that under VO-005 Bluewater took the risk of any customs formalities beyond the 24 hours allowed in VO-005 but this was deleted from the Amended Further Information.

Mercon says that there were 112 hours of laytime in St Petersburg between 3 and 10 July 2008 and that the causes of delay were waiting time to berth and a problem due to a discrepancy with the weight of the umbilicals of 1kg between the bill of lading and the packing list. Mercon says that Bluewater had demanded that all shipping documents, except export documents out of Holland, should be submitted to it for checking.

Bluewater says that the issue at St Petersburg according to Mercon was an incorrect weight on the Bill of Lading which showed the umbilicals as weighing 5635kg whilst the packing list showed a weight of 5636 kg. Bluewater says that these documents were for Mercon to finalise and complete and any errors were therefore matters for which Mercon was responsible and, in any event, Mercon revised the Bill of Lading at St Petersburg.

Mercon says that it was for Bluewater to get the weight of the umbilicals right. Bluewater says that Mercon made an error because Mr Hoep provided Flinter on 24 June 2008 with a packing list prepared by Mercon, which showed that the weight of the umbilicals was 5635kgs whilst the Bill of Lading also prepared by Mercon and dated 26 June 2008 showed a weight of the umbilicals at 5636kgs. Bluewater says that this discrepancy between two documents prepared by Mercon and any delays caused by this are Mercon’s responsibility. It refers to Flinter’s email to Mercon on 5 July 2008 which said: “Vessel arrived at St Petersburg roads 03.07.2008 15.50 hrs and stay at anchor awaiting ‘green light’ that all customs documents are in order” and the laytime calculation provided by Flinter which showed that in St Petersburg the ship was “waiting as documents not ready” from Friday 4 July 2008 to Tuesday 8 July 2008.

Mercon also says that there was a delay due to the ship waiting for a berth. Bluewater submits that time waiting for a berth would be Mercon’s responsibility.

In relation to the demurrage claim based on the 112 hours of laytime, Bluewater says that Mercon was responsible for transit customs clearance which included clearance through St Petersburg and this is not demurrage and should be disallowed. Further, Bluewater says that it was not responsible for delays caused by errors in Mercon’s documents and the laytime calculation describes the delay as “waiting as documents not ready” which is not Bluewater’s responsibility, so the 112 hours of demurrage claimed should be disallowed.

On the basis of the evidence of what happened at St Petersburg, there was first delay caused by the discrepancy in the shipping documents and then, it seems there may have

The laytime calculation of 112 hours shows all the time except for Customs Transit Clearance of 20 hours being “waiting as documents not ready”. I consider that Mercon was responsible for the period when the documents were not ready and as customs clearance did not take more than 24 hours, there is no claim for demurrage.

Ship 1 arrived in Astrakhan on 24 July 2008 and alongside the quay at Astrakhan on 25 July 2008 at 08:00.

Mercon also says that there were 394 hours of lay time at Astrakhan from 24 July 2008 to 11 August 2008 caused by the need to off load the FMS into the bonded area, and a dispute about the bill of lading so that load in and cargo clearance through customs was not completed until 11 August 2008.

Bluewater says it is not responsible for any costs or delays incurred by the refusal of the Ship’s master in Astrakhan to place the FMS Frames on top of the Ship’s hatches or for the delay in ASPO commencing the off-loading of the FMS frames on 31 July 2008. It also says that it should not be responsible for Mercon’s delay in handing over the original Bill of Lading at Astrakhan which caused delay between 24 July and 26 July 2008.

In a letter dated 23 July 2008 Mercon stated that custom clearance could begin with the copies of the Bill of Lading, the originals being available on 25 July. However, Bluewater stated that the procedure required certificates and the original Bills of Lading were needed. On 25 July 2008 Bluewater noted that handover was delayed by the unavailability of the Original Bill of Lading and it also refers to Mr Knibbe’s record for 25 July 2008 where he notes that the ship has arrived but “BOL not on site, so still no signing handover certificates.” Mercon says that the original Bill of Lading was hand delivered later that day and unlashing of the cargo started on 25 July 2008 at 09:00 but the cargo was not discharged. Mercon says that it provided the Certificate on 26 July 2008 which both parties signed. Up to 26 July 2008 I do not consider that Mercon has established any shipping delay for which Bluewater was responsible.

There were then two matters which occurred: the need to unload the FMS and the way in which the Central Column was unloaded which I must now deal with.

Bluewater says that further problems arose in Astrakhan relating to the unloading of the FMS from Ship 1. Bluewater says that it had made it clear that equipment including the FMS bound for Baku could not be offloaded at Astrakhan. Ship 1 was also used to transport the Central Column and piles bound for Astrakhan. Mr Nijboer had stated in a letter to Mercon dated 2 June 2008 that “Equipment and containers for BAKU has to stay on board and is not allowed for temporary storage/re-loading in Astrakhan. Reloading can be executed only on deck.”

Mercon’s stowage plan meant that the piles were located underneath the FMS frames which therefore had to be removed. The FMS frames were to be lifted out of the hold and placed on the ship’s deck after the Central Column was offloaded at Astrakhan, allowing the piles to be offloaded and the FMS frames would then be loaded back into the hold. However, upon arrival in Astrakhan it became apparent that the ship’s Master would not agree to this although on 24 July 2008 Flinter had said that this operation of re-stowage of cargo from the hold onto the hatch covers had been discussed and agreed with the Master.

As a result, the FMS was unloaded into a bonded area on the quay. Bluewater accepted that this should happen but on 31 July 2008 stated that this acceptance was issued “under objection.” Bluewater says that it was Mercon’s responsibility under Clause 5 of VO-005 to optimise the stowage plan and the problems caused by loading the FMS on top of the piles meant that this unloading difficulty was caused in Astrakhan.

The piles were loaded onto Ship 1 at Rostock whilst the Central Column and the FMS were loaded at Gorinchem. It was clear that the FMS and other equipment which was to be shipped to Baku could not be unloaded at Astrakhan. For that reason Mercon made arrangements with the ship’s Master for the FMS to be stored on the ship’s deck whilst the Central Column and piles were unloaded. However when the Master arrived in Astrakhan he said he would not allow this although Flinter said that it had been agreed. This meant that the FMS had to be unloaded into a bonded area on the quay and then loaded back onto the ship again to be transported to Baku. I accept, as Bluewater submits, Mercon were responsible for optimising the stowage plan. The problems caused in Astrakhan arose because of the method of loading of the FMS which was a matter for which Mercon was responsible as part of its transport obligations. It follows that any delay caused by the need to unload and re-load the FMS was the responsibility of Mercon.

Ship 1 arrived at the quayside at about 8:00am on 25 July 2008. Handing over the Bill of Lading which was Mercon’s responsibility was done on 26 July 2008. The Central Column was handed over to Bluewater and then transferred back to Mercon on 29 July 2008 following customs clearance.

The plan was to unload the Central Column from Ship 1 directly into the substructure. The load in procedure for the piles and the procedure for the Central Column installation were issued by Mr Pors of Mercon on 24 July 2008, pending LOC approval. This showed the Central Column being offloaded directly into the substructure.

Mercon says that this did not happen because Lukoil required it to be placed in the bonded customs area. It refers to a letter from Bluewater to Lukoil dated 28 July 2008 which states this. However, Bluewater says that the Central Column was never in the bonded storage area but was put on the quay because Mercon’s plan to lift the Central Column directly into the substructure had not been approved by LOC.

It is clear from Mr van den Brule’s email of 12 August 2008 that there were still outstanding issues with LOC about the upending procedures for the Central Column. There was correspondence following LOC’s review of Mercon’s procedure for Central Column installation (document 910.09.017) sent on 24 July 2008 and LOC set out some initial comments in a document dated 31 July 2008. LOC required “details in English of the amount of fixation needed before the central column is released from the crane in its vertical position. This should include consideration of the completeness of the base structure, amount of weld for connection to base structure, and back up calculations showing ability to withstand maximum local environmental conditions.”

Whilst Bluewater was complaining to Lukoil about the fact the Central Column was being offloaded onto the quayside, it is clear that it was the late submission of the upending procedures by Mercon which prevented the Central Column from being installed directly into the substructure. Bluewater was evidently seeking to overcome these difficulties by incorrectly blaming Lukoil. It is clear that even by 12 August 2008 LOC had not yet approved the upending procedures. I consider that the delay by Mercon in providing the necessary information to obtain LOC approval was Mercon’s responsibility. It was responsible for the design of the temporary condition of the structures and it was this that caused the period of delay prior to lifting the Central Column into the substructure on 18 August 2008.

Therefore, given the views expressed above, I do not consider that Bluewater was responsible for any of the issues which caused to load-in of Ship 1 at Astrakhan. It follows that Mercon is not entitled to an extension of time.

In relation to demurrage, the claim is from 08:00 on 24 July 2008 to 18:00 on 11 August 2008. The initial problem with the Bill of Lading caused delay until 26 July 2008 and then from the records it seems that the problems with unloading were then caused by the need to offload and re-load the FMS. It is not possible on the evidence to identify a period of delay when demurrage might apply. I therefore do not allow any demurrage claim.

Mercon says that there were 129 hours of lay time at St Petersburg from 30 August 2008 to 6 September 2008 caused by a mistake on the shipping documentation for the equipment going to Baku when Customs required the values and HS codes for the equipment. Mercon says that Bluewater provided this information on 3 September 2008 and then customs required the values for each piece of equipment leading to updated transport documents being provided on 4 September 2008.

Bluewater says that Mercon was responsible for transit customs clearance which includes clearance through St Petersburg and this should not be claimed as demurrage. In any event, Bluewater says that it is not responsible for delays caused by errors in Mercon’s documents and that transit customs formalities took from 2 September 2008 to 5 September 2008 to finalise. Further Bluewater says that “Awaiting for berthing” is not demurrage but falls within the journey, which is the owner’s risk and so the period up to 1 September 2008 at 19:00 should be disallowed.

Bluewater confirms that issues with the documentation prepared by Mercon arose at St Petersburg. On 29 August 2008 Mr Hoep asked for the invoices needed for customs clearance in St Petersburg. Bluewater says that there does not appear to have been any earlier request and it replied 20 minutes later sending the requested information.

On arrival in St Petersburg the Ship’s agent sent a message on 1 September 2008 detailing items missing from the “Baku BL invoice.” This was sent on by Mr Hoep to Bluewater who replied with updated invoices and packing lists later on the same day.

Mercon then requested additional information from Bluewater on 3 September 2008 and was then required by Russian officials to provide further information on 4 September 2008. Bluewater says that all of these were sent on the same day. On 5 September 2008 Ship 2 cleared customs in St Petersburg.

Bluewater says that under the INCOTERMS it was Mercon’s responsibility to arrange for the documents required for transit to Astrakhan, including the requirements to pass through St Petersburg. I accept that and it is evident from the chronology that Mercon failed to prepare the appropriate documents for transit through St Petersburg and are responsible for any delay in the process between 1 and 5 September 2008.

In relation to the laytime calculation, claimed from 30 August 2008 at 01:15 to 6 September 2008 at 01:30, it is clear from the evidence that it was the failure of Mercon to provide the necessary documents which caused difficulties during the period on 3 and 4 September when the customs formalities were being carried out. I see no grounds for any demurrage claim on this basis, particularly given the allowance in VO-005 for customs clearance.

It was then on 11 September 2008 that Mr Heij learnt that the flame/gas detectors which were supposed to be shipped on board Ship 2 had in fact been loaded on the crane structure to go on Ship 3, meaning that the invoices and documents would be incorrect. As I have found above this was a problem for which Mercon were responsible. It was Mercon’s responsibility to provide the correct documentation, including the Bill of Lading and it was also Mercon who packed the items onto Ship 2. Any delays or other consequences because the Bill of Lading was incorrect were Mercon’s responsibility as were discrepancies between what was on board and what should have been on board. In the event, there was no problem with the shipment when it reached Astrakhan and the discrepancy did not come to light.

Shipment 2 arrived at the port of Astrakhan at 23:10 on 24 September 2008, 18 days after the ship sailed away from St Petersburg on 6 September 2008. However, its arrival in port was delayed by the presence of the Volgar crane by the quayside at ASPO’s yard. I accept that, as Mr Knibbe says, had Mercon informed ASPO in good time of the arrival date of Ship 2, this issue and any delay would have been avoided. The fact that the Volgar was operated by Lukoil did not make Bluewater responsible for any delay.

There is a claim for demurrage at Astrakhan on the basis that laytime commenced on 25 September 2008 and took 123 hours through to 2 October 2008. Bluewater says that Mercon is responsible for the delays caused by blockage in the ASPO harbour which meant that although Ship 2 arrived on 24 September 2008 it was not able to berth until 29 September. I accept that this was caused by matters for which Mercon was responsible and so do not give rise to a demurrage claim. The laytime calculation appears to be incorrect but given that Ship 2 finished discharging on 1 October 2008 and there was a 48 hour period allowed in VO-005, I am not satisfied that Mercon has established any demurrage claim for discharging in Astrakhan.

Ship 2 berthed on 29 September 2008 but Mercon was not ready with the certificates to handover and off load the components until 30 September 2008 when the Topsides, spool pieces and deck cargo were unloaded and Lukoil then diverted the other two containers for Astrakhan into the customs port (ACCP). The Certificate for the two containers was signed on 2 October 2008 and Ship 2 left Astrakhan on 2 October 2008 at 21:50.

However, further issues arose with the containers which resulted in them being retained in customs until a first 'batch' of cargo was released on 30 September 2008, whilst the remaining Topsides materials were released on 16 October 2008 and on 7 November 2008. The documents show that these further issues with customs arose because a bicycle and Swagelok glue were included. The bicycle was not considered relevant to the Works by Lukoil and the Swagelok glue was not declared. These items appear to have caused problems with the release of the containers from customs in the period from 30 September 2008 until 23 October 2008, if not longer.

Whilst under the DDU INCOTERMS, customs clearance was a matter for which Bluewater was responsible, these matters which caused the delay were caused by errors made by Mercon in failing to provide the correct documentation.

There is also a claim for demurrage at Baku on the basis that laytime commenced on 6 October 2008 and took 49 hours 15 minutes through to 9 October 2008. Bluewater says that Mercon has not explained how discharge in Baku took longer than the 24 hours allowed and why there are long periods of “awaiting discharging” and so this period should be disallowed. I accept that and do not consider that Mercon has established this demurrage claim.

On this basis I do not consider that Bluewater was responsible for any issues causing delay to load in of Ship 2 at Astrakhan or for any of the delays after Ship 2 left Gorinchem. It follows that there are no grounds for an extension of time. Equally I am not satisfied that Mercon has any demurrage claim.

The problems with Ship 3 relate to its arrival in Astrakhan on 11 November 2008 when it was sent to ACCP, the customs port, because, as reported by Mr Knibbe in his email of 12 November 2008, customs wanted to do a visual declaration. Mr Knibbe noted that “This means that they have discovered that there are more items on the Crane Structure than mentioned in the BoL”.

Mercon says that there were 104 hours of lay time at Astrakhan caused by the dispute over the clearance through customs of the flame and gas detectors.

Issues arose because the flame and gas detectors were placed on the crane structure but not declared as they should have been shipped with Ship 2. Bluewater says that, again,

As I have found above this was a problem for which Mercon were responsible. It caused the difficulty with the discrepancies between what was on board and what should have been on board Ship 2. The discrepancy in Ship 3 came to light and the detectors were retained in the ACCP area until they were finally released after 16 February 2009. As I have found above, as a matter of causation, the problems which arose with Ship 3 were the result of the original error and the deliberate strategy undertaken by Mercon of fitting the detectors on the crane but not including them in the documentation. It follows that it was Mercon who was responsible for the continued detention of the detectors.

Ship 3 finished discharging on 12 November 2008 and departed Astrakhan on 13 November 2008 but the crane structure and the Yoke Hinge remained in the Astrakhan customs area (ACCP) and not at ASPO due to the problems with the documentation. At the date of termination the flame and gas detectors on Ship 3 were still held at customs but the Yoke Hinge and crane were released from ACCP on 17 December 2008.

There is a claim for demurrage between Gorinchem and Astrakhan without a laytime calculation. Bluewater says that it would appear from the Statement of Facts that load out in Gorinchem took less than 24 hours on 22 to 23 October 2008 and that load-in at Astrakhan was completed in the period provided from 11 to 13 November 2008. This appears to be correct and I do not consider that Mercon has established a claim for demurrage.

There is also a claim for demurrage at Baku on the basis that laytime commenced on 16 November 2008 and took 104 hours and 25 minutes through to 21 November 2008. Bluewater says that Mercon has not offered any explanation as to why discharge in Baku took longer than the 24 hours allowed and this period should be disallowed. In the absence of any proper evidence on this, I do not allow any demurrage.

As a result I consider that it was Mercon who was responsible for the delay in the loadin. In addition I do not consider that Mercon has established a demurrage claim.

Mercon says that the fabrication at Gorinchem and Astrakhan was completed, more or less, in line with the baseline programme and that it was issues such as the delay to the arrival of the Central Column in Astrakhan, followed by its delayed release from customs, problems with pre-heating and welding issues and then, eventually, the onset of the harsh Russian winter that caused progress to slow up between August to December 2008.

In relation to Bluewater’s case that the delays at Astrakhan between September and December 2008 arose because Mercon was not paying ASPO, Mercon says that there is no evidence that Mercon’s disputes with ASPO over timesheets or its queries over invoices resulted in a go-slow by ASPO. It says that what caused or aggravated the delays to the works in this period was Bluewater’s refusal to accept responsibility by issuing proper site instructions and that Bluewater’s failure to administer the contract properly was the prime cause of the delays during August to December 2008.

Mercon’s originally pleaded case in relation to this period was that the Yoke Hinge and crane which were part of Ship 3 were off-loaded from ACCP to the wrong place and therefore Mercon was not prepared to accept transfer of care and custody and that it was also delayed by the absence of gas and flame detectors which were held in customs at ACCP.

In the Amended Further Information Mercon pleaded that delays were experienced in this period as a result of the delivery of the Yoke Hinge to an area not agreed by Bluewater and Mercon; the Topsides being delayed by the unavailability of the Swivel which was released from customs on 7 November 2008 and the need to incorporate the Yoke Hinge; the Central Column being delayed by Mercon’s inability to undertake work during the winter months and the impact of the Russian Christmas shutdown and the slow progress of welding and instructions and changes to welding procedures and that the substructure was delayed by the lack of progress due to the winter sensitivity of the works and the slow progress of the welding.

Bluewater says that, as both delay experts agree, Works at ASPO’s yard almost stopped in December 2008 and it refers to Mr Cookson’s report at paragraph 8.7.82 where he states that little further work was carried out during the period from 18 December to 3 February 2009. Bluewater says that the real reason for work progressing slowly at ASPO was Mercon’s failure to pay ASPO and to enter into a new additional agreement. Bluewater also says that critical delay in this period was caused by the absence of adequate pre-heating.

In relation to the Yoke Hinge, as I have said above in relation to termination, this component was in customs because of the problems with the documents for Ship 3 but from 19 December 2008 Mercon could have proceeded with installation of the Yoke Hinge and, in any event, could have done so from early January 2009 if there was an issue about an instruction to carry out the work. The underlying cause of the delay was, again, the documents for Ship 3 which were the responsibility of Mercon and any delay in commencing installation was caused by matters for which it was responsible.

In relation to the Swivel, it was released from Customs on 7 November 2008 and was installed the next day and the as-built schedule does not show inactivity on the Topsides in the period immediately preceding the release of the Swivel. Whilst the work to the Topsides could not be completed without the Swivel, workers were not standing around waiting for the Swivel. The cause of the problem was, again, the documents for Ship 3 which were the responsibility of Mercon and so any delay was caused by matters for which it was responsible.

In relation to Mercon’s case that delays to the integration works to the Central Column and substructure were caused by difficulties with welding, it is noted that Mercon says that this related to extra welding in Astrakhan because the change in design needed much thicker steel plates to be used which, in turn, needed pre-heating. Mr Cookson’s view is that a delay of about a month was caused by the absence of pre-heat equipment.

The need for pre-heating was known of by Mercon, as confirmed in the evidence given by Mr van den Brule, from a meeting in August 2007 when the minimum pre-heating requirements for the Central Column steel were discussed. It is clear that by a meeting

In May 2008 ASPO knew what the preheating requirements were going to be, as Mr Hoogenboom confirmed in evidence by reference to the relevant WPS for the welding of braces to the Central Column. That WPS (1500-KMY-G), signed off by the classification society and SEC on behalf of Bluewater, stated that the method of preheating was “propane flame orelectrical heaters.”

At a meeting on 4 September 2008, it was discovered that ASPO was using ring burners to carry out pre-heating and Mercon and Bluewater agreed that this method was insufficient and unsafe. Mercon stated that it was only aware of this from 1 September 2008 and was investigating alternatives. Work to the braces could not continue in the meantime due to unavailability of the pre-heating equipment. On 12 September 2008 Mercon indicated that it had sourced some pre-heating equipment.

Although Mercon says that the change in design meant that it needed to use much thicker steel plates which required pre-heating, the thickness of the steel plates which had to be welded had been changed in 2007 and the need for pre-heating was known in August/September 2007. The extent of pre-heat required for the particular welding of the diagonal braces of the substructure to the Central Column was finalised in May 2008, well before the work was started.

It follows that the delay of about a month identified by Mr Cookson as being caused by the absence of pre-heating was something for which Mercon was responsible because it failed to obtain the necessary pre-heating equipment. It was not caused by any late changes.

In these circumstances, Mercon was responsible for any delays which occurred to the works due to ASPO’s failure to apply pre-heating.

In relation to Mercon’s claim that work was delayed by the weather conditions, as set out above, some work was being carried out and could be carried out during this period. In particular painting was and could have been carried out in January 2009. In any event, Mercon’s delays to completion of the Works in September 2008 led both to the need to work in the winter and to the period of delay when Mercon finished working at ASPO for Christmas on 20 December 2008 and to return on 12 January 2009.

In relation to the gas and flame detectors detained in customs, for the reasons set out above this was caused by matters for which Mercon was responsible. In any event, although the Works could not be completed by Mercon without the gas and flame detectors, no interruption to the progress of work has been identified by their absence.

As a result, I do not consider that Mercon has established that any delay to the progress of the completion of the structure for Milestone C6 was caused by matters which were the responsibility of Bluewater.

Milestone C3 is defined in the Contract as: “Jacket and Pile pre-fabrication and preassembly complete, tested and precommissioned, accepted by BLUEWATER’s Representative and Certifying Authority, ready for Integration with SYMS PreAssemblies ex.Gorinchem”

There is a dispute between the parties as to whether Milestone C3, which has not been certified as being completed, was in fact completed when the substructure was ready for the Central Column to be installed. The date for this Milestone in the Contract, as amended by VO-005, was 15 July 2008. Mercon refers to Mr Illingworth’s evidence, agreed by Mr Cookson, that, although there was a delayed start to the assembly of the substructure in May 2008, it was ready to receive the Central Column on or before 20 July 2008, when all 5 main bracings were in place, which is 5 days after the VO-005 key date for C3.

Bluewater says that whilst the Jacket part of the sub-structure was ready on or about 20 July 2008, Milestone C3 could not be achieved until the piles were accepted by Bluewater’s representative and the certifying authority as the Milestone requires completion of the “jacket and pile” so the piles have to be complete. Bluewater says that Milestone C3 was never completed by Mercon as work on the piles remained outstanding at termination.

I consider that Bluewater is correct in its interpretation of Milestone C3. It was necessary for both the Jacket and the Piles to be completed and, although the Jacket was complete, work to the piles was, as set out above, still continuing at the date of termination. It follows that Mercon had not achieved Milestone C3 by the date of termination.

Milestone C5 is the start of integration of the SYMS pre-assemblies ex Gorinchem into the jacket assembly on 15 July 2008. Mercon says that the Central Column and the Substructure were both fabricated within or close to the periods allocated in the baseline programme.

It is common ground that integration started on 18 August 2008 and, for the reasons set out above, I do not consider that Bluewater was responsible for the delay to Milestone C5 caused by the fact that the Central Column was not unloaded directly into the substructure.

It follows that Mercon was therefore responsible for the delay to the achievement of Milestone C5 on 18 August 2008, some 36 days after the contractual date of 15 July 2008 in the Contract, as amended by VO-005.

Milestone C6 required completion of the integration of the pre-assemblies ex Gorinchem which had to be tested accepted and pre-commissioned by Bluewater and the certifying authority. The revised date for this Milestone in the Contract, as amended by VO-005, was 14 September 2008.

As set out above, it was envisaged that the handover of the SYMS would take place on 18 December 2008, when Lukoil was expected to accept it with a punch list. However Lukoil was not prepared to accept the SYMS. Mercon provided Bluewater with a handover certificate for the SYMS on 29 December 2008 but, for the reasons dealt with above in relation to termination, that was not accepted. DNV did not issue its certificate in respect of Milestone C6 until 24 February 2009 and Lukoil then did not take delivery of the SYMS until 30 May 2009.

The delay experts note that the period for integration of the Central Column was 51 days but that it did not start until 20 August 2008. They have then identified a period of inactivity between 11 September 2008 and 1 October 2008. The welding of the upper bracings was put on hold on 2 September 2008 due to concerns over the method of preheating being used by ASPO. The Approval of the revised method using electric heaters was given by DNV in its report of 30 September 2008. Mercon then says that welding to the upper bracing continued once the hold was lifted and did not finish until mid-November 2008.

From Mr Cookson’s as-built programme which he derived from the weekly reports, only punch list items were attended to in December 2008. No or little work was progressing up to 19 January 2009 or from that date up to termination.

Mercon’s pleaded case was that there was delay to the sub-structure caused by the late and sporadic release of design information resulting in 125 days’ critical delay which was then mitigated during construction but then 13 days critical delay was caused by “the late release of the Central Column from the Lukoil controlled bonded area and the late clearance of Customs on 12 August 2008”.

For the reasons set out above I do not consider that Mercon has established that there was any delay caused by the late or sporadic release of drawings and, in any event, the substructure was only a few days late by reference to the date on which it was required to be ready for the integration of the Central Column. Further, for the reasons already given, the delay to the installation of the Central Column was a matter for which Mercon was responsible because Mercon did not have the requisite approvals for the upending procedure from LOC.

It follows that Mercon has not established any delay to Milestone C6 caused by matters for which Bluewater was responsible.

For the reasons set out above I do not consider that Mercon is entitled to an extension of time to complete Key Dates B4.1, B4.2, B4.3, C3, C6 or C9 or any other Key dates.

In the light of my findings, I can deal with this issue briefly.

Mercon says that Bluewater prevented Mercon from achieving Milestones B4.1 to B4.3, C3 and C6 by its own conduct, including conduct in breach of the Contract, principally the failure to issue design drawings on time and conduct permitted by the Contract, principally instructing extra work. Mercon says that the Contract did not, on its proper construction, provide a mechanism for the grant of extra time for such events and time was therefore at large. Bluewater submits that there is a mechanism for granting extension of time.

For the reasons set out below, where I have analysed Clauses 14.2 to 14.7 of the Contract in more detail, I consider that the ability of Mercon to request and Bluewater to give a Variation under Clause 14.2 includes an adjustment to the Schedule of Key Dates, which are the dates for completion of the Milestones. The dates for completion can therefore be extended by Bluewater. The grounds for such an extension are broad but, importantly Clause 14.2(c) shows that Mercon is entitled to receive a Variation to cover any instruction, decision or act of Bluewater. It follows that there is a mechanism for extensions of time under the Contract by way of the adjustment of the Schedule of Key Dates and that the grounds include grounds which cover acts of prevention.

Equally, for the reasons set out above, I have not found that there were acts of prevention for which Bluewater was responsible.

The principle by which time becomes “at large” was summarised by Jackson J, as he then was, in Multiplex Construction (UK) Ltd v Honeywell Control Systems Ltd [2007] BLR 195 at [56] where he said:

“(i)

actions by the employer which are perfectly legitimate under a construction contract may still be characterised as prevention, if those actions cause delay beyond the contractual completion date.

(ii)

Acts of prevention by an employer do not set time at large if the contract provides for extension of time in respect of those events.”

The principle is of some antiquity and has a surprising effect on the contractual obligations as to the time for completion. As I have found that there is an extension of time mechanism for acts of prevention and I am able, so far as is necessary, to determine the appropriate adjustments to the Schedule of Key Dates, this is not the opportunity to consider the underlying basis for the principle.

Bluewater claims liquidated damages up to the cap on liquidated damages which under Clause 35.1(c) of Section 2 of the Contract is limited to a maximum of seven percent of the Total Contract Price. The precise sum therefore depends on the matters set out below, where I have determined that the Total Contract Price is €22,812,995.74, compared to Bluewater’s case that it is €17,912,436.66 and Mercon’s case that it is €25,899,076.36.

Bluewater’s claim is based on Mercon’s failure to complete milestones B4.1, B4.2, B4.3, C3, C6, C9 and C12 but it points out that, given the rates for liquidated damages and the level of the cap, it only has to establish a comparatively small number of days of delay.

Mercon does not accept that, in the circumstances, Bluewater is entitled to liquidated damages. It refers to Clause 35.1(b) of Section 2 of the Contract which provides that:

“Liquidated damages for late delivery shall finally be calculated over the last milestone, being Key Dates C9 or C12 respectively, achieved by the CONTRACTOR and delays and liquidated damages on previous milestones shall then be disregarded.”

Mercon submits that, as the earliest date upon which C9 could have been achieved by Mercon was July 2009, regardless of whether Mercon’s performance was on schedule or not, and as there is no evidence that Mercon’s performance of the works was in any way causative of or affected the delay to C9, Bluewater was not entitled to liquidated damages and Bluewater’s inchoate rights to receive liquidated damages under Clause 35.1 had not crystallised at termination. Accordingly Mercon submits that Bluewater is not entitled to liquidated damages.

Bluewater refers to Clause 35.1(a) which provides:

“If CONTRACTOR fails to complete any of the items listed in the SCHEDULE OF KEY DATES in accordance with the relevant date included therein and/or fails to achieve the requirements of the CONTRACT in respect of any other items listed in Section 4 – Schedule of the Work, the CONTRACTOR shall be liable to BLUEWATER for Liquidated Damages. The amounts of such Liquidated Damages shall be as follows:

a)

For late delivery of any and all individual elements as detailed in the SCHEDULE OF KEY DATES (Attachment 4A to Section 4), the amount of Liquidated Damages per calendar day shall be:….”

It says that under Clause 35.1 there is a two stage regime for liquidated damages. It says that the starting point is that under Clause 35.1(a) liquidated damages accrue as Mercon fails to complete any of the Milestones by the stated date and that liability is not contingent upon any future event. It says that Clause 35.1(b) then provides for a separate regime upon the achievement of the last Milestone which has the effect of adjusting earlier accrued liquidated damages and only applies when liquidated damages are “finally calculated” upon achievement of the last Milestone. In the present case as the Contract was lawfully terminated before the achievement of the last Milestone, C9, Bluewater submits that the final calculation of liquidated damages under Clause 31.5(b) does not take place and the accrued right to liquidated damages under Clause 31.5(a) stands.

The calculation of liquidated damages under Clause 35.1 is, in my judgment, correctly described by Bluewater as being a two stage approach. The first stage is to make calculations as time progresses and assess liquidated damages which accrue for the non-completion of the Milestones set out in Clause 35.1(a). Subject to the cap in Clause

Under Clause 35.1(a) Mercon is liable to Bluewater for liquidated damages. I consider that this means that the liability of Mercon to pay Bluewater accrues when there is delay to one of the Milestones which attract liquidated damages. That sum then is payable by Mercon to Bluewater. On termination the provisions of Clause 30.6 deal with further payment to Mercon and, whilst Bluewater may deduct liquidated damages from payment, that is not the sole remedy as Mercon has an independent liability to pay liquidated damages under Clause 35.1. However as made clear by Clause 30.7, after termination the right of Bluewater to be paid liquidated damages does not continue but that does not affect accrued rights. It follows therefore that Mercon cannot avoid liability to liquidated damages by arguing that the “inchoate” right under Clause 35.1(b) has not accrued. Bluewater’s right to payment under Clause 35.1(a) had accrued by the date of termination and was enforceable by Bluewater against Mercon and was unaffected by termination. However on termination Clause 35.1, including 35.1(b), did not continue to have effect for delay after that date.

On that basis, both because there were accrued rights under Clause 35.1(a) and because the instruction to carry out storage and/or the absence of a load out vessel until 1 June 2009 had not impacted to be causative of delay by the date of termination, I do not consider that Mercon can avoid the impact of liquidated damages by relying on “inchoate” rights under Clause 35.1(b) or a cause of delay which would only impact on Milestone C9 after completion of Milestone C6.

On the basis of the delays set out above, Bluewater is entitled to liquidated damages as follows just for the B4 Milestones at €50,000 per day:

I have found that the Total Contract Price is €22,812,995.74 and as liquidated damages for delay are limited to 7% of the Total Contract Price, Bluewater is entitled to €1,596,909.70 for liquidated damages.

Bluewater claims an abatement on the lump sum component of the contract price in respect of various items of work that, it alleges, were not done at all or not fully done.

The basis for this claim is pleaded in paragraph 37 of the Re-Amended Particulars of Claim as follows:

“On a true construction of the Contract, including clause 17.9 of section 2A, clause 2.1 of section 5 and the detailed price breakdown in attachment 5B, the Claimant is entitled to make deductions from the Contract Price and/or the Contract Price is not payable if and insofar as Work was not in fact done as required by the Contract. From a practical perspective such deductions are necessary primarily in relation to lump sum elements of the Works which were to be reimbursed through payments for the completion of Key Milestones.”

In paragraph 370 of its Opening Submissions Mercon stated:

“It should further be noted that an abatement is available only for defective performance. In a number of cases, Bluewater is claiming a rebate for work included in the price but which, for its own reasons, it asked Mercon not to carry out. It is not entitled to an abatement, although for a few such cases Mercon has agreed a rebate as a concession.”

Mercon has also raised two general points which it is convenient to deal with at this stage. First, it says that there is no provision in the Contract for abating the Contract Price on the basis that the work was not carried out. Secondly it says that Bluewater did not assert any right to claim a reduction in the Contract Price for certain items prior to its purported termination of the Contract. At Paragraph 12.3 of the Re-Amended Defence and Counterclaim Mercon says that Bluewater did not seek to correct or modify any sum previously paid to Mercon as contemplated by clause 17.9 of Section 2(a), before the date of wrongful termination and is not now entitled to operate that provision because the Contract is at an end. Mercon also challenges the legal and factual basis for a number of items and I shall deal with those matters below.

As pleaded Bluewater submits that on a true construction of the Contract, including clause 17.9 of section 2(a) and clause 2.1 of section 5, it is entitled to make deductions from and not pay the Contract Price for work not done. It also submits that, in any event, the absence of an express contractual mechanism is no bar to Bluewater being able to abate the Contract Price to reflect services not provided. Bluewater also says that Mercon has not properly explained its case on the consequences of termination.

So far as quantum is concerned the quantum experts have been able to agree the value of the various items as set out in Appendix 9.1 to their second joint statement, if liability to make the abatement is established.

The applicable legal principles on abatement were summarised by Jackson J, as he then was, in Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd [2006] EWHC 1341 at [652]:

“(1)

In a contract for the provision of labour and materials, where performance has been defective, the employer is entitled at common law to maintain a defence of abatement.

(2)

The measure of abatement is the amount by which the product of the contractor’s endeavours has been diminished in value as a result of that defective performance.

(3)

The method of assessing diminution in value will depend upon the facts and circumstances of each case.

(4)

In some cases, diminution in value may be determined by comparing the current market value of that which has been constructed with the market value which it ought to have had. In other cases, diminution in value may be determined by reference to the cost of remedial works. In the latter situation, however, the cost of remedial works does not become the measure of abatement. It is merely a factor which may be used either in isolation or in conjunction with other factors for determining diminution in value.

(5)

The measure of abatement can never exceed the sum which would otherwise be due to the contractor as payment.

(6)

Abatement is not available as a defence to a claim for payment in respect of professional services.

(7)

Claims for delay, disruption or damage caused to anything other than that which the contractor has constructed cannot feature in a defence of abatement.”

Clause 17.9 of Section 2(a), as amended by Clause 8.2 of Section 2(b) of the Contract, allows Bluewater, after due consultation with Mercon, to correct or modify any sum previously paid if any sum was incorrect or not properly payable to Mercon or if any work did not comply with the terms of the Contract. Clause 2.1 of Section 5, Compensation and Payment, states that Bluewater shall pay Mercon the provisional Total Contract Price and any revisions thereto calculated in accordance with the provisions of the Contract and Section 5. The Total Provisional Contract Price consists of a “fixed and firm Lump Sum Price for preliminaries”, a “provisionally estimated Measurement Price” subject to actual quantities and a “provisionally estimated Reimbursable Price” which shall be subject to changes. Attachment 5B gives a breakdown of the Total Provisional Contract Price into LS (Lump Sum), PS (Provisional Sum) and RS (Reimbursable Sum).

In my judgment if part of the work in the form of activities included in the preliminaries was not done by Mercon which should have been done then there would be defective performance and Bluewater could abate the Lump Sum Price to reflect that defective performance. That is the basis of abatement set out above and relied on by Mercon. However, as Mercon submits, if Bluewater requested Mercon not to carry out part of the preliminaries but did not give a Clause 14.1 instruction to give rise to a Variation then there would be no right to abate the Lump Sum Price. If Bluewater was entitled to abate the Lump Sum Price then I consider that Clause 17.9 of Section 2 would permit Bluewater to deduct the relevant sum to abate the Lump Sum Price. So far as termination is concerned, having found that Bluewater was properly entitled to terminate the Contract then, as provided by Clause 30.7(b), Clause 17.9 remains in effect and Clause 30.6(b) provides that Mercon shall only be entitled to be paid for the part of the Work completed in accordance with the Contract up to the date of termination. It follows that, contrary to what is pleaded by Mercon, Clause 17.9 survives termination.

I now turn to consider the various items.

Bluewater’s claim relates to Mercon’s failure between April 2007 and February 2009 to issue the monthly interface matrix.

Mercon denies liability for this item and says that it was unable to issue interface matrices because of a failure by Bluewater to “make all required information available” under Clause 5.5 of Section 3 of the Contract. Mercon says that, for example, Bluewater issued the AFC drawings late and on a sporadic basis and radically altered

Bluewater submits that the absence of an express mechanism does not prevent Bluewater from abating the Contract Price to reflect services not provided nor does the fact the claim was not made pre-termination preclude the claim. It also says that Mercon has not adduced any evidence on its inability to issue interface matrices because of an alleged failure by Bluewater.

The obligation to provide the interface matrix and to update it as work progressed is set out in Clause 5.5 of Section 3, management of interfaces. Mercon’s obligation was to update the interface matrix as work progressed and issue it to Bluewater on a monthly basis. There is no evidence that Mercon was prevented from doing this by a lack of available information from Bluewater and, in any event, the obligation was to update it based on progress and information provided so that the lack of information would not prevent the update from being produced and issued. As a result I consider that this is a case of defective performance by Mercon and Bluewater is entitled to an abatement.

The appropriate value for this particular item is agreed by the QS experts at €1,500.68.

This item is similar to Bluewater’s claim in respect of interface matrices but relates to the failure to issue a monthly risk register. Mercon says that it was Bluewater’s responsibility to prepare the risk register. It also says that there was no express entitlement to an abatement on this ground and that the claim was not asserted pretermination.

Bluewater relies on the evidence of Mr de Geus and Clause 5.6 of Section 3 of the Contract. It says that it was to issue Mercon with a pro-forma risk register which Mercon then had to update and reissue on a regular basis but failed to do this.

Clause 5.6 of Section 3 makes it clear that, as Bluewater submits, Mercon was to take Bluewater’s pro-forma and update and issue the risks register on a monthly basis. It failed to do so and I consider that Bluewater is entitled to an abatement for this defective performance.

The appropriate value is agreed by the QS experts at €1,500.68.

Bluewater contends that, in breach of contract, Mercon did not request approval of subcontractors and vendors; it did not allow Bluewater to participate in its procurement and subcontracting processes; it did not ensure that Bluewater’s requirements were incorporated into subcontracts and purchase orders and did not procure fixed and firm priced spare parts lists for vendor/supplier recommended spares. Bluewater says that it notified Mercon contemporaneously of these failures. It relies on Clauses 3.7 and 3.9 of Section 3, Clauses 8.2(a) and (c) of Section 2(a), clauses 10.2 and 10.3 of Section 8 and Clause 1 and 2 of section 10 to the Contract, together with the evidence of Mr de Geus.

Mercon denies that it was in breach of its obligations and asserts that the claim is not properly particularised. In relation to Ferna (the piping subcontractor) Mercon asserts that it approached Bluewater’s preferred sub-contractor (Fabricom) but could not agree the contractually required terms with Fabricom and thus engaged Ferna.

The documents relied upon by Bluewater all relate to the subcontract with Ferna and to correspondence exchanged on 17 April 2008. Whilst that correspondence relates to the problems which Mercon says it had with engaging Fabricom and Bluewater’s reaction to Mercon engaging Ferna and there is reference to Mercon’s lack of a sub-contracting plan, Bluewater has failed to establish the default alleged. In relation to Ferna the matter was dealt with in NCR 043 dated 29 June 2009. Whilst there was a lack of consent to Ferna initially that does not establish Bluewater’s claim and therefore the claim for this item, agreed by the QS experts at €750.34, fails.

Bluewater contends that Mercon failed to comply with document control requirements throughout the execution of the Work and that documents were not issued in the required hard and electronic format, with no document control register being in place. Bluewater relies on Clauses 5.1 and 5.10 of Section 3 of the Contract and the evidence of Mr de Geus.

Mercon says that it did maintain documents registers and that it issued documents in the manner specified in the Contract and it refers to the use of its document control register in relation to VO-003. It also says that Clause 5.1 of Section 3 does not relate to this claim.

It is evident that the only relevant provision is Clause 5.10 of section 3. Mr de Geus makes no reference to particular documents or to any correspondence concerning the alleged failure. There is evidence of some document control having been carried out by Mercon and I am not persuaded that Bluewater has established this claim, which the QS experts valued at €1,500.68.

Bluewater claims that Mercon failed to provide any, or any adequate, health and safety throughout the contract period. Bluewater relies on Mercon's contractual obligations in respect of HSE management set out at Clauses 7.2 and 9.2 of section 2(a), Clauses 2.1, 3.1, 3.2 and 5.7 of section 3, Item 1.3 of Attachment 5B and Section 11 of the Contract and the evidence of Mr de Geus. It also refers to a letter of 27 August 2008 enclosing a site visit report during the lifting of the Central Column when breaches of HSE requirements were noted and instructed to be remedied.

Bluewater also refers to the documents in Bundle K18 which it says show the poor state of health and safety at ASPO and indicate Mercon’s failure to provide HSE management. It also relies on a document of 14 July 2008 at ASPO which records insufficient quality control and HSE concerns and a document of 19 August 2008 which reports further issues. Bluewater says that Mercon was neglecting its HSE obligations, in particular in relation to ASPO. Bluewater also raises particular concern at serious HSE failings recorded in ASPO’s accident book including a crane crash which occurred on the SYMS project when an overloaded crane with an excessive boom crashed to the ground in high winds.

Bluewater refers to the lump sum of €20,000 allocated to this item in the detailed price breakdown in Attachment 5B of the Contract and says that, as the work was not performed at all, it is entitled to a credit of this full amount.

Mercon denies this claim and says that a claim for the full amount of HSE management is exaggerated. It says that, as stated in the Contract, Mercon provided HSE management both in Gorinchem and at ASPO. It says that any failures in HSE reported by Bluewater in the documents were remedied as can be seen from a lack of later complaints.

At times there were evidently breaches of HSE requirements during the work at ASPO and this reflected poor HSE management but those breaches and poor management do not establish the claim. The fact that there were breaches does not mean that Mercon cannot recover for the preliminary item for this activity. As the QS experts note, for the claim to succeed in the amount of €20,000, there would have to have been a complete non-provision of the service or facility priced by Mercon. That is not the case. Whilst there are some breaches of HSE, I do not consider that this is a case where those breaches establish the claim or, in any event, that it is possible to assess any deduction or make a proportional allowance for this item. The claim therefore fails.

Bluewater contends that Mercon failed to provide any, or any adequate QA/QC management throughout the contract period and it provides examples of this in Schedule 1a to the Re-Amended Particulars of Claim.

Bluewater says that Mercon was in breach of Clause 23 of Section 2(a), Clause 8.7 of Section 2(b), Clauses 2.1, 3.1, 3.3, 3.4, 3.5, 3.8, 5.5, 5.11, 6 and 8 of Section 3 and Clause 11 of Section 8 of the Contract. In particular, it says that Mercon failed to comply with these requirements in relation to Corrective Actions; Close Out of NonConformances; Inspection and Test Plans; Dimensional Control; Material Control; Unauthorised Transport of the Central Column from SIF (Roermond) to Mercon; Unauthorised Transport of SPM Piles from Siegen (EEW) to Rostock (EEW); Unauthorised Start of Longitudinal Welding SPM Piles at EEW (Siegen); Unauthorised Start of Circumferential Welding SPM Piles at EEW (Siegen); Unauthorised Removal and Scrapping of Bluewater Project Materials and Unsegregated Storage and Lay Down Areas.

Bluewater refers to the lump sum provision in Attachment 5B to the Contract where for “preliminaries - management facilities [Gorinchem/Astrakhan]” there is a sum of

Mercon denies this allegation and asserts that the claim for the full amount allowed for QA/QC management is exaggerated. It refers to various documents including an NCR issued by it on 8 April 2008 in relation to “Unauthorised Removal and Scrapping of Bluewater Project Materials” and says that NCR-033 should never have been issued in relation to the item “Unsegregated Storage and Lay Down Areas”. It also refers to

Whilst there were evidently a number of NCRs issued by Bluewater and Mercon which would be evidence of a failure of QA/QC management and which then had to be dealt with under the contractual NCR provisions, I do not consider that this gives rise to a quantifiable claim for an abatement of the sum paid to Mercon for QA/QC management. As the QS experts note there was a contract allowance for Management QA/QC of €97,500.00 but for the claim to succeed in this amount, there would have to have been a complete non-provision of the service or facility priced by Mercon. That is clearly not the case. Whilst there are some breaches of QA/QC I do not consider that this is a case where those establish the claim made by Bluewater or, in any event, where it is possible to assess any deduction or make a proportional allowance for this item. The claim therefore fails.

Bluewater claims that Mercon failed to provide a suitably qualified and experienced interface engineer throughout the duration of the project from 1 April 2007 until termination. Bluewater says that it notified Mercon contemporaneously of this failure and relies on Clause 5.5 of Section 3 of the Contract.

Mercon denies that it was obliged to provide an interface engineer and says that the relevant work was carried out by the Project Engineer. There was therefore no preliminary item for this.

Under the Contract there was no separate requirement for an interface engineer and the only obligation under Clause 5.5 of Section 3 was the updating and issue of updated interface matrices which I have dealt with above. I therefore do not consider that Bluewater has established a claim for this item.

Bluewater contends that there was a failure to carry out a handover when there was a change of the scheduling control planning/reporting engineer from Mr Geijtenbeek to Mr Sansaar.

Mercon says that the obligation in Clause 9.3 of Section 2(a) was limited to “Key Personnel” and that Attachment 9B, which identifies those personnel, does not include the role of scheduling control planning/reporting engineer. It also says that Mr Geijtenbeek left at the beginning of the project and there was nothing to hand over.

Clause 9.3 of section 2(a) provides, in relation to Key Personnel, that “Any replacement shall work with the person to be replaced for a reasonable handover period.” Key Personnel are identified in Attachment 9B but, as Mercon states, neither Mr Geijtenbeek nor the position of scheduling control planning/reporting engineer is included in the list. In any event it is wholly unclear what period, if any, would have been a reasonable handover period in this case. I therefore reject this abatement, agreed by the QS experts at €375.17.

Bluewater makes a similar claim to that in respect of the scheduling control planning/reporting engineer but in respect of the change in document controller from Mr Visser to Mr Ayoub-Ouai.

Mercon says that the document controller was not key personnel and therefore the provisions of Clause 9.3 of Section 2(a) do not apply.

Again neither Mr Visser nor the position of document controller is contained in Attachment 9B and I therefore reject this abatement agreed by the QS experts at €375.17.

Bluewater claims that there was a failure by Mercon to provide a suitably qualified and experienced HSE Inspector/Site Safety Officer at ASPO during the currency of the work. Bluewater refers to Clause 9.2 of Section 2(a) of the Contract which provides that “All personnel employed on the WORK shall, for the work which they are required to perform, be competent, properly qualified, skilled and experienced in accordance with good industry practice. The CONTRACTOR shall verify all relevant qualifications of such personnel.”

Mercon says that, as recorded in Attachment 2 to the Contract amendment signed in October 2007, Mr Portnov of ASPO provided the HSE function in Astrakhan. It submits that he did provide that function and any recorded breaches of HSE requirements were dealt with.

As set out above, in relation to “Failing HSE Management”, Bluewater relies on documents in bundle K18 which it says shows a serious position in respect of HSE at ASPO. It refers to Mercon’s defence to the LADs personnel claim where Mercon positively asserts that it had no representative other than an ASPO individual responsible for this role. Bluewater says that Mercon was obliged to provide its own personnel to oversee ASPO rather than allow ASPO to oversee themselves.

As I have said, at times there were evidently breaches of HSE requirements during the work at ASPO and this reflected poor HSE management but those breaches and poor management do not establish this claim. The fact that there were breaches does not mean that Mercon cannot recover for the preliminary item for the provision of the person providing the HSE function. It is not clear that Mr Portnov was not a suitably qualified and experienced HSE Inspector or that any failure in that respect meant that Mercon “failed to perform HSE Management properly or at all” during the execution of the Work. As a result I do not consider that Bluewater is entitled to an abatement of €28,571.43 which the QS experts agree is the appropriate value for providing this person.

In relation to this claim, although it denies a breach of contract, Mercon accepts that it did not perform weighing at its fabrication yard at Gorinchem and therefore liability for this item is not disputed. The parties are in agreement that the reduction in the amount claimed is €32,000.00.

Again the parties are in agreement that a reduction in the amount of €12,000 applies.

Bluewater says that Mercon accepts that, allegedly as a result of the termination, it did not carry out the function of translating shop drawings and accordingly liability for this item is not disputed. The parties are in agreement that a reduction of €8,000 applies.

Bluewater claims that the “Pins and Bucket” system did not comply with the specification, evidencing a failure to provide any, or any adequate, shop engineering. Bluewater refers to NCR-008 dated 22 January 2009 and says that the re-work was carried out by ASPO and VO-008 needs to be decreased.

Mercon denies this item. It refers to its reply to NCR-008 on 28 January 2009 and says that there was sufficient tolerance between each pin and bucket to accommodate the relatively small departures from specification. Mercon therefore says that Bluewater received the benefit of the fabrication drawings and has been supplied with the pins and buckets.

The QS experts note that Bluewater claims abatement for work not done and also claims the cost of correcting the work actually carried out under the NCR claims. They consider that Bluewater is only entitled to claim either abatement or cost of making good, not both. They say that if Mercon failed to perform any of the shop engineering but Bluewater performed the shop engineering and Bluewater is not claiming the shop engineering costs incurred elsewhere it may be open for Bluewater to claim this abatement. The experts agree that Bluewater has correctly identified the allowance in the Contract for this work €4,344.00.

Bluewater accepts that these claims are necessarily alternative to the identified NCR008 and accepts that it would not be able to recover for both claims.

On the basis of Mercon’s submission it is accepted that there was a departure from the specification. Bluewater had work carried out to correct this default. I consider that if there were errors which were corrected then, as accepted by Bluewater, it cannot claim both for an abatement and the remedial work. This again is a case where I consider that Mercon was entitled to be paid for the preliminaries because it did not fail to carry out any of the shop engineering but carried it out incorrectly. Any claim by Bluewater would therefore be for the costs of the necessary remedial work. The claim for an abatement therefore fails.

Bluewater’s claim is based on discrepancies in the walkway and access platforms for the Yoke Arm which, it says, evidence a lack of shop engineering. Bluewater says that there were discrepancies in design or fabrication, or a lack of any adequate shop engineering. Bluewater relies on the evidence of Mr de Geus who said that Bluewater decided to take the assembly of the yoke arm out of Mercon’s scope of work and had the parts shipped loose from Mercon's yard in Gorinchem to KSM's yard in Baku. He says that it is standard industry practice to supply walkways and platforms "green" with a little bit of leeway and not cut to their exact dimensions or fabricate to size and also to trial fit them before shipment. He says that Mercon did neither and this led to considerable problems assembling the components in Baku. He says that Bluewater incurred extra costs due to the additional work to overcome the problems which Mercon had created. Bluewater refers to NCRs-011, 012 and 014 dated 25 May, 26 May and 2 June 2009.

Mercon denies the claim and says that any problems arose from Bluewater’s engineering and design drawings and not from Mercon’s production engineering and shop drawings.

Mercon refers to the three NCRs and says that in relation to NCR-011 it was not required to supply handrails so that they should loosely fit and a note relied on by Bluewater “Handrail needs remove” was not on the version of the drawing issued to Mercon. In relation to NCR-012 Mercon says that it was not required to fit the relevant part of the grating in Gorinchem as the drawing said that this was to be done after a base plate was welded at Baku. In relation to NCR-014 Mercon says that it complied with the design drawings and notes that the NCR refers to “poor workmanship” rather than any discrepancy from drawings or poor shop engineering.

The QS experts point out that Bluewater is claiming an abatement for work not done and also claiming the cost of correcting the work actually carried out under the NCR claims. The experts agree that Bluewater has correctly identified the allowance in the Contract for this work at €3,475.20.

Bluewater has not replied to the points raised by Mercon and, in particular, as to the three NCRs. Bluewater accepts that this claim is an alternative to those NCRs and that it would not be able to recover under both the NCRs and under this heading.

I do not consider that Bluewater has established that there was a failure by Mercon in relation to shop engineering or shop drawings. In any event, I consider that if there were errors which were corrected then, as accepted by Bluewater, it cannot claim both for an abatement and the remedial work. This again is a case where I consider that Mercon was entitled to be paid for the preliminaries because it did not fail to carry out any of the shop engineering but carried it out incorrectly. Any claim by Bluewater would therefore be for the costs of the necessary remedial work. The claim for an abatement therefore fails.

Bluewater’s claim is based on Mercon’s refusal to carry out the relevant Yoke Arm Installation at ASPO. This arose because of Mercon’s refusal to accept care and custody of the Yoke Hinge Casting at ASPO, as dealt with above in relation to termination. Again Bluewater refers to NCRs-011, 012 and 014. It also refers to VO264 and ASPO’s invoices in relation to Work Pack No.01.

Mercon says that under the original scope Mercon was not obliged to carry out the permanent fitting of the Yoke Hinge but that it carried out the required trial fit at Gorinchem in September 2008. It says that if the Contract had not been terminated Mercon could have charged for this work on a reimbursable basis.

The QS experts say that Bluewater is claiming an abatement for work not done and also the cost of correcting the work actually carried out under the NCR claims. They agree that Bluewater has correctly identified the allowance in the Contract for this work at €3,475.20.

Bluewater accepts that this claim is an alternative to NCRs-011, 012 and 014 and that it would not be able to recover under both the NCRs and under this claim.

As stated above I consider that there was no clear instruction by Bluewater to Mercon to install the Yoke Hinge prior to Bluewater’s letter of 6 January 2009 by which they made it clear to Mercon that it should complete the work, including “install yoke hinge”. The allowance in the contract covered fabrication and shop engineering which is not the work which is claimed here which is an alleged failure to carry out the installation of the Yoke Hinge. I consider that, as the instruction was given on 6 January 2009, Mercon is correct in saying that the work would have formed part of the reimbursable work which it could have recovered. I do not consider that this is a matter which gives rise to an abatement of the relevant preliminary item.

The parties are in agreement that a reduction in the amount of €16,580.00 applies.

In the detailed price breakdown in Attachment 5B to the Contract there is an item in section 5 “Supply/Fabrication/Erection SYMS Substructure – Astrakhan” which states

“delivery mid October 2008” with a lump sum of €475,000 against it. The parties agree that this item is related to the item ‘Adjustment to Delivery date (discount)’ below.

Bluewater seeks a deduction in this amount because the load out was not achieved by mid-October 2008. It says that the money was only due if delivery was achieved by mid-October 2008 and that payment of this sum is related to the delivery of Milestone C3, the construction of the sub-structure at ASPO and that the payment was to ensure that works to Milestone C3 commenced and were completed in time to achieve overall delivery for load out by mid-October 2008. Bluewater says that payment for this item was contingent on delivery and load out being achieved by mid-October 2008, which it was not.

Bluewater says that Milestone C3 was not completed in time to ensure delivery by midOctober and delivery was not achieved by mid-October and the completion date for Milestone C3 was 1 June 2008 amended to 15 July 2008.

Mercon submits that the provision is ambiguous and that extraneous evidence needs to be admitted to properly construe this provision. It relies on its letter of 3 October 2006 and avers that the sum is a booking fee for ASPO’s services from June to October 2008.

Bluewater says that this evidence is inadmissible unless the clause is ambiguous which Bluewater contends it is not. In addition it says that Mercon’s letter merely states “option 1: extra costs for start assembly during early June 2008 and Load-out mid October 2008” which does not provide elucidation in relation to this item and does not demonstrate that the fee was a booking fee. Rather it says that on the face of this letter the payment was for load-out in mid-October 2008 and, even if the sum is a booking fee, it was clearly linked to delivery by mid-October 2008.

Mercon contends that if Bluewater is correct then the reason that loadout was not achieved in mid-October 2008 was because of acts of prevention by Bluewater. It therefore contends that, if the sum is deductible because of a failure to achieve load out by mid-October 2008, the reduction should not apply because of that prevention. Bluewater denies that Mercon was prevented from achieving load out by Bluewater’s acts.

The provision in Attachment 5B to the Contract is ambiguous on its face. It is a lump sum for “delivery mid-October 2008”. It could be payable if delivery were achieved on that date or if it was achieved on any date, the mid-October date being merely indicative. However it is to be noted that the Milestone C3 date was 1 June 2008, amended to 15 July 2008.

The contemporary documents show that this item arose from Mercon’s letter of 3 October 2006 and was an extra cost to start assembly in early June 2008 for load-out in mid-October 2008.

On 26 January 2007 Bluewater recorded the following in relation to a discount of €300,000:

“Extended Delivery Date:

BLUEWATER can accept the proposal by MERCON for a reduction of EUR 300,000.00 (excl. VAT) due to the fact that management by ASTRAKHAN KORABEL will not be required, since MERCON shall manage the Works at ASTRAKHAN KORABEL.”

The item clearly related to a lump sum for an “extended delivery date” which involved starting assembly in early June 2008 for load-out in October 2008. I do not read that provision as being contingent on achieving something by a particular date and do not accept Bluewater’s submission that payment was only due if works to Milestone C3 commenced and were completed in time to achieve overall delivery for load out by mid-October 2008. I consider that it related to costs, whether a booking fee or otherwise, for the work at ASPO to be carried out over an extended, longer period. This is consistent with the reduction of €300,000.

I do not consider that Bluewater has established any breach by Mercon which would entitle it to an abatement in relation to those costs. It follows that in relation to this item and the item below, ‘Adjustment to Delivery date (discount)’, I do not consider that Bluewater is entitled to an abatement.

The QS experts agree that a lump sum of €7,100.00 was included in the Contract Price for the pile sleeve guides, but point out that no credit is due to Bluewater because the finally agreed remeasure did not appear to include this work. As a result, Bluewater no longer pursues this claim.

I have dealt with this under the item “Failure to Deliver by mid-October 2008” above.

In the light of the conclusions set out above I consider that Bluewater is entitled to the sum of €71,581.36 by way of abatement for work not carried out, as follows:

Bluewater’s claim relates to the lack of full time availability of Mr de Jong as project manager from 1 April 2008 through to termination. Bluewater relies on Clause 3 of Section 9 of the Contract, which provides that “KEY PERSONNEL shall be engaged in the WORK on a full-time basis, unless otherwise agreed with BLUEWATER” and refers to the project manager being Key Personnel as identified in Attachment 9B.

Mercon denies that it was under an obligation to provide a full time project manager and asserts that it was only obliged to provide “sufficient personnel at all times to ensure performance and completion of the WORK in accordance with the provisions of the Contract” as provided in Clause 9.1 of Section 2(a) of the Contract.

Mercon further disputes that it did not provide the project manager on a full time basis as a matter of fact.

In relation to the extent to which a project manager needed to be on site to properly perform his duties, Bluewater notes that Section 1 Form of Agreement of the Contract provides at Clause 7 that the Contractor’s Representative is the project manager and Clause 3.1 of Section 2(a) requires the representatives to be accessible at all times and Clause 2.2 of Section 8 expressly requires the Contractor’s representative to be assigned full time to the project “and based at the WORKSITEs for the duration of the Work” to be available full time. Bluewater contends there were periods of many months when Mr R de Jong was not onsite at all, which was unacceptable.

Mr de Jong was not based at the Worksite and, as he said in his evidence, he was working on other projects. However from the letters and other activities which he carried out offsite he clearly spent significant time working on this project. If he was not on the worksite but was working on the project then that breach would not sensibly lead to an abatement. Equally, it is not clear to what extent he was not available. I am not persuaded that there should be any reduction.

Bluewater’s claim relates to the lack of full time availability of the Transport Manager (Mr J Marijnissen) after 1 April 2008 and Mercon’s failure to provide a suitably experienced replacement. Bluewater says that the replacement for Mr Marijnissen, Mr Hoep, was not a suitably experienced transport manager and it rejected the purported appointment of Mr Hoep.

Mercon pleads that Mr Hoep replaced Mr Marijnissen but in his second witness statement Mr de Jong says that Mr Hoep did not replace Mr Marijnissen who remained responsible but with Mr Hoep supporting him with administrative matters. Mr de Jong maintained this evidence in cross-examination and I have no basis for doubting it to be correct. On this basis, whilst Mr Hoep lacked the necessary knowledge and experience as I have found, there was no lack of availability of a transport manager who was assisted by Mr Hoep. It follows that the claim at the agreed value of €3,751.69 fails.

Under this head Bluewater claims that Mercon failed to provide proper weekly and monthly progress reporting throughout the project. It relies on the evidence of Mr de Geus who says that Mercon's progress reporting was very poor. He says that Bluewater had informed Mercon of what it expected to see in a progress report in the meeting of 30 March 2007 and it took a while before Mercon issued the first progress report and after that the reports appeared to be issued at random and did not meet the agreed submission date. He says that the reports missed large amounts of information which were specifically required in the Contract and they also contained errors. He refers to correspondence containing complaints, mainly between July and December 2007.

Mercon denies this allegation and contends that the claim is inadequately particularised.

There were evidently occasions when the reports produced by Mercon were inadequate or late but this is not a case where there were, as Bluewater contends, no proper reports. In those circumstances I do not consider that Bluewater has established an entitlement to an abatement in the agreed value of €2,626.18.

Bluewater’s claim relates to the lack of full time availability of the Russian Representative from 1 April 2007 to 15 September 2007. It refers to certain provisions in the Contract and to correspondence in September 2008.

Mercon denies liability for this item and says that the Contract contained a lump sum for the Russian Representative who did not need to be full time. Mercon says that Mr Umerov was the representative and was not required whilst the structure was being redesigned in 2007.

I do not consider that there was an obligation for a full time Russian Representative and therefore Bluewater are not entitled to an abatement for a period when one was not provided because, on the evidence of what activities were being carried out in Russia, one did not need to be provided. Accordingly the claim fails.

Bluewater claims that an inadequate number and insufficiently outfitted office facilities were provided for 4 months from April to July 2007. It says that Mercon was obliged to provide those offices under Clauses 6.3 and 12 of Section 3 of the Contract. It relies on Mr de Geus’ evidence in which he refers to the Minutes of the Kick Off Meeting held on 30 March 2007 and Bluewater's letter to Mercon dated 22 June 2007. Bluewater says that office facilities were not made available by Mercon until July 2007. It says that what Mercon proposed was only temporary work places limited to 2 people when its obligation was to provide Office and IT facilities for up to 6 Bluewater and 3 client representatives.

Mercon denies that it was obliged to provide office facilities during the period in question and relies on Clause 6.3 of Section 3 of the Contract. It says that fabrication had not commenced until 1 July 2007 and that, as a result, Bluewater did not require office facilities. Mercon says that it offered accommodation at its own offices whilst the facilities were prepared for Bluewater on site.

Clause 6.3 of section 3 states that “Personnel of BLUEWATER…shall be afforded reasonable use of the site facilities as required” and Clause 12 provides the detail of the

Bluewater claims an abatement for the lack of a Scheduling Control/Reporting Engineer from 20 December 2006 until 1 September 2007 following the resignation of Mr Geijtenbeek at the beginning of the project. Bluewater relies on Clause 2.2 of Section 8 and Clause 3 of section 9.

Mercon denies this claim on the basis that the Scheduling Control and Reporting Engineer was not one of the ‘Key Personnel’ and it was not obliged to provide such an engineer on a full time basis.

Whilst Mercon had to carry out planning and reporting, the Scheduling Control/Reporting Engineer was not listed on Attachment 9B. Mr Geijtenbeek was identified on the Organisation Chart but that did not make him one of the Key Personnel. I do not therefore consider that it was a breach by Mercon in not providing a specific Scheduling Control/Reporting Engineer for a period of some 8 months. Bluewater’s claim for an abatement therefore fails.

Bluewater claims that Mercon was required to provide installation engineering in terms of preparing a Yoke Hinge Assembly Procedure and failed to do so. Bluewater relies on Clause 3.10 of Section 3 of the Contract which obliged Mercon to provide method statements and procedures and says that it failed to do so. Bluewater says it spent time and effort, calculated at approximately 20 hours in total, providing the procedure.

Mercon denies that it was obliged to provide the procedure and says that Bluewater produced the assembly details as part of Bluewater’s design obligation. Mercon says that Bluewater provided the relevant assembly procedure on 31 March 2008 and Mercon then produced all necessary shop drawings.

I do not consider that Bluewater have established that Mercon was obliged to provide this assembly procedure for the Yoke Hinge or that the drawing which Bluewater produced in March 2008 was something which Mercon should have produced. There is a dividing line between design which was to be carried out by Bluewater and shop drawings and engineering which were to be carried out by Mercon and Bluewater has not established that the drawing fell on Mercon’s side of that line. The claim for an abatement therefore fails.

Bluewater claims that 8 of the pile guides were not fabricated in accordance with the Contract. It seeks an abatement for this work which was raised as NCR-010. Bluewater accepts that there is duplication as it seeks to abate the full amount of the guides elsewhere in its claims and only pursues this claim in the alternative to the claim for the full costs of the guides which is its primary case.

Mercon says that in response to NCR-010 dated 23 January 2009 and as acknowledged by Bluewater’s representative, Mr Knibbe, on 28 January 2009, it carried out the required remedial work to the pile guides.

I have considered the claim for NCR-010 and rejected it on the basis that there was no remedial work to be done at the date of termination. This claim for an abatement therefore also fails.

Bluewater says that the parties agreed under VO-005 that the pre-commissioned SYMS components would be shipped to Astrakhan and this overtook the existing agreement to transport the piles separately which was included in the lump Sum price at Item 8.1 of Attachment 5B to the Contract. Whilst Bluewater accepts that VO-005 covered the costs of transport for the 5 piles it does not accept that it also contained or reflected the omission necessary for that part of the Lump Sum price allowed for in item 8.1 which related to the original transport of the 4 original piles.

Bluewater originally claimed €301,462.00 but now pleads that €60,000.00 represented the cost of transportation from Rostock to Gorinchem and €241,462 for transportation from Gorinchem to Astrakhan. It therefore amended its claim for an abatement to €241,462. It also pleads that the allowance in the Lump Sum item 8.1 for transportation amounted to €60,000 and that Mercon is entitled to credit for this sum.

Mercon contends that VO-005 was an agreed lump sum adjustment to the Contract Price for shipment and no further discount is due.

Mr de Geus refers to the revision of VOR-075 which Mercon issued on 19 February 2008 which had an attached schedule. In that schedule there is a reference to a quotation from Flinters dated 13 February 2008 for an extra over cost of €60,000.00 for loading 10 piles at Gorinchem. He says he believes that this was the amount of the allowance within the original contract lump sum for transportation of the piles. VO-075 was then included within VO-005 dated 20 June 2008.

The central issue is whether or not the agreed adjustment to the Contract Price in VO005 should be construed as taking into account whatever sum had been included in the Lump Sum price at item 8.1 of Attachment 5B to the Contract. By its terms VO-005 provides that the Lump Sum value of the Variation Order was €1,391,000 and the Cumulative Revised Provisional Total Contract Price was €13,514,303.86. As can be seen from the Attachment to VO-005, that figure was based on the original Total Provisional Contract Price of €10,468,223.37 which included the Lump Sum price in item 8.1 of Attachment 5B to the Contract. In my judgment the Lump Sum Price under VO-005 was intended, on an objective reading of VO-005 and Attachment 5B to the Contract, to be a sum additional to the Lump Sum price in item 8.1 and therefore there is nothing which falls to be deducted from that Lump Sum price for the original allowance to transport 4 piles.

Bluewater claims an abatement to the Lump Sum price in VO-005 because Ship 3 did not call at Ijmuiden to collect the pendulums. Bluewater says that it did not call there because Mercon failed to procure Ship 3 on time but submits that, although there is a dispute between the parties about the reason why Vessel 3 did not call at Ijmuiden, because the vessel did not call there it is entitled to an abatement in the Lump Sum price for VO-005 as it did not receive these services and should not pay for them.

Mercon says that Bluewater decided not to utilise Ship 3 for reasons unconnected with anything Mercon did and that when the change occurred, it was too late for Mercon to cancel the agreement or renegotiate the price of Vessel 3 because it did not call at Ijmuiden and thus says that there should be no adjustment to VO-005.

Bluewater says that it is not credible that removing a port of call would not reduce the shipping price and Mercon has not demonstrated this in evidence. It also says that Mercon had issues with arranging Ship 3 and a ship had not even been nominated when the decision was taken to transport the piles by other means.

The experts agree that the credit of €26,000.00 sought by the Claimant is correctly identified from agreed VO-005 but note that the additional costs of transportation by rail have also been claimed in Schedule 8. Bluewater no longer pursues the claims related to the transport of the pendulums in Schedule 8 and no question of overlap now arises.

For the reasons set out above I consider that Bluewater is only entitled to have an abatement from the Lump Sum price if it can show that there was defective performance by Mercon. In relation to Ship 3 whilst there was a delay, it was Bluewater’s decision for Ship 3 not to call at Ijmuiden and I do not consider that there was defective performance by Mercon which caused that.

Bluewater no longer claims an abatement on the basis that Vessel Position updates were not provided.

As a result I find that Bluewater is entitled to an abatement of €15,385.00 in respect of work partly not done, calculated as follows:

Variation Order VO-008 went through three revisions and contains re-measured work. Revision 1 was issued on 25 July 2008, Revision 2 on 25 November 2008 and Revision 3 on 3 December 2008. Whilst the Variation Order form was not signed, Revision 3 of VO-008 attached an “Interim Assessment of the Re-measurement, status date 21-NOV2008” which was signed by the parties with that date. It also stated the “INTERIM Value” of the Variation Order.

Bluewater’s case is that the vast majority of items in VO-008 were the subject of final agreement and that the agreement was ‘provisional’ only in the sense that there were some particular items which remained in dispute and other specific items yet to be fully valued. Bluewater says that the only items which were subject to adjustment after the provisional VO-008 (excluding discount) were the E&I Reduction Pending Cable Check, Insulation, Weld Test and PWHT.

Bluewater relies on the evidence of Mr de Geus, which it says was not challenged, where he says that VO8 says “interim” on its face as there were some items of work which still had to be agreed in the re-measure but in respect of the other items in VO8, they were agreed, and both Mercon and Bluewater signed off the calculations which are binding.

Mercon says that each revision of VO-008 was signed by the parties but also provided that it was an “interim assessment of the re-measurement” because the parties adopted a system of progressive “rolling” measurement. It says that VO-008 had not been agreed in final form by the date of termination.

The parties did not reach a stage where they were prepared to sign off the form of Variation Order so as to finalise VO-008. It is common ground that there was not a final agreement of this Variation Order but Bluewater seeks to say that some matters were agreed as binding whilst other matters were still open. Whilst that may have been a view taken by Mr de Geus, it is difficult to see how it can be derived from the documents. As often happens in cases of re-measurement, there is a rolling remeasurement as the work progresses and this allows for interim payment. However until there is some final agreement it is open for a party to revisit the re-measurement and there is no binding agreement in the interim. The language of the Variation Orders makes it clear that this was the position in this case by the emphasis on the word “interim” in terms of the re-measurement and value. In such circumstances, I do not accept Bluewater’s submission that there was a binding agreement as to some but not all of the re-measurement.

However the effect of that finding is reduced because in many instances the quantum experts have agreed the figures or rates in the provisional VO-008 and Mercon’s claims relate mainly to items or drawings which had not been agreed, even provisionally, at the time of Revision 3 of VO-008. I now turn to consider the various claims.

For convenience I shall consider the various items in the order in which they appear on Appendix A (Revision 3) to the Quantum Experts’ Joint Statement and I shall use the item numbers in that appendix.

The difference between the parties in relation to the structural steel work is €919,878.92. There are a number of components, which are each addressed below using the Item references in Appendix A Revision 3 as corrected.

There is an undisputed structural measure of €5,012,051.99 which is agreed between the parties.

Mercon claimed €298,152.88 under this item but no longer pursues this claim.

The quantum experts have identified an arithmetical error of €60,448.21 in Bluewater’s favour in the value of the turntable in the provisional VO-008. Bluewater says that this discrepancy does not form part of any parties’ pleaded case and accordingly should be ignored. The matter has been fully dealt with at the hearing and I consider that Mercon is entitled to claim €60,448.21 to correct that error.

The quantum experts agree that the back-up calculations for the provisional VO-008 erroneously credit Bluewater twice for supplied steel, once in the star rate and once at the end of the measure so that Bluewater has been given a credit of €17,111.23 in error. Bluewater says that this discrepancy also does not form part of any parties’ pleaded case and accordingly should be ignored. The matter has been fully dealt with at the hearing and I consider that Mercon is entitled to claim €17,111.23 to correct that error.

Mercon originally claimed €86,168.57 for this item and then in its Opening Submissions reduced the claim to £8,427.29. In its Closing Submissions it states that it does not pursue this item.

The difference between the parties in relation to this item is €457,930.20. Mercon claims that sumfor sea-fastening and grillage in connection with the load-out of the SYMS components at Gorinchem, predominantly for the Topsides and the Central Column. The quantum experts are agreed that 79.919 Mton of steel was supplied and used by Mercon to fabricate the sea-fastening and grillage, including the transverse H beams and saddles to the Central Column. I shall deal with this claim by considering a number of issues.

Mercon says that sea-fastening and grillage formed part of the

“supply/fabrication/erection” work at Gorinchem and accordingly was chargeable on a re-measurable basis under item 4 of Attachment 5B of the Contract and the appropriate rates were those provided in Attachment 5G.

Bluewater refers to Attachment 4A of the Contract, Schedule of Key Dates, where Milestone B4 is “Load out of (pre-)assembled Units and Ship Loose Items, including seafastening and Warranty Survey, alongside CONTRACTOR’s Yard in Gorinchem”.

I do not consider that the discussion between Mr de Geus and Mr van Den Brule in 2006 is admissible evidence of the way in which the work involved in sea-fastening is dealt with in the pricing arrangements under the Contract. Mr van Den Brule’s evidence was that, as a ball park estimate, 10% of the total weight of the steelwork structure would be expected to be the weight of the sea-fastening steelwork. That I do not consider assists, in any event, in saying whether it is included in the preliminaries item or was part of the re-measurable work.

The pricing basis under the Contract in Attachment 5B identifies item 2 as “Preliminaries – Yard Facilities (Gorinchem)”, item 4 as “Supply/Fabrication/Erection – Gorinchem” and item 7 as “Supply/Fabrication/Erection – Grillage/Seafastening – Astrakhan”. One of the items under Preliminaries is “Load-out” and, as Bluewater submits, Milestone B4 defined load-out as including, amongst other things, seafastening. I consider that in the context of load-out being a single operation which included sea-fastening then a Lump Sum for load-out should be interpreted as including the necessary grillage and sea-fastening work which would form part of the load-out operation, as demonstrated by the Milestone definition.

I consider that the comparison between items 4 and 7 in Attachment 5B also assists in coming to this conclusion. The wording of item 4 does not mention sea-fastening whilst Item 7 which is only grillage and sea-fastening mentions Supply/Fabrication/Erection - Grillage/Seafastening. Whilst this might be argued to indicate that

I have therefore come to the conclusion that Bluewater is correct and that Mercon were re-imbursed for sea-fastening within the Preliminaries for load-out in item 2. That, of course, was related to the original design of the SYMS. Whilst the evidence of Mr van Den Brule does not assist in the issue of where an allowance was made within the Contract Price, on the basis of my finding that the Lump Sum preliminaries item did include an allowance for the costs of sea-fastening then a 10% allowance of the weight of 80Mton or 8Mton represents, in my judgment, the best available evidence of a fair assessment of the allowance within that Lump Sum. I accept that, as set out in Bluewater’s letter of 12 June 2008, the additional sea-fastening costs were agreed to be on the basis of re-measurement.

Bluewater says that of the 39.919Mton of the steel used to sea-fasten the Central Column, Topsides and ballast tank, 30.357Mton was used for H beams and saddles, which were “temporary supports” or “temporary work” and was therefore included in the measured work unit rates under “temporary works” under Clause 3.3.1(h) of Section 5 of the Contract.

Bluewater says that the steelwork used for H beams and saddles was available for Mercon to use as scrap after use and was not materially altered by the use of the same material for sea-fastening because they were returned to Mercon’s possession in ASPO’s yard in Astrakhan.

Mercon accepts that the H beams and saddles were alsoused as temporary supports prior to load out. It says that they were nevertheless an integral part of the seafastening/grillage and Mercon was entitled to be paid for the use of that steelwork as sea-fastening/grillage.

From the evidence, in particular the photographs of the Central Column, it is apparent that the materials making up the sea-fastening were essentially the same as those used for the temporary works to hold the Central Column during the temporary works and transport around the site. Section 5 of the Contract at Clause 3.3.1 (h) provides that “the rates (in the remeasure) shall include for provision of temporary works, fabrication aids and fabricating and erecting temporary supports, adaptations as necessary, and dismantling and clearing away on completion”.

However, I do not consider that the fact that steelwork for use as temporary works or temporary support has been paid for by being included in the rates means that, when that steelwork is later used by Mercon for another purpose, it cannot be paid for as part of that work. Whilst Mercon re-used the existing steelwork, it could have used other steelwork and in doing so it could not be argued that it was entitled to be paid nothing for that steelwork. A contractor is paid for the use of materials for temporary purposes but that does not preclude the contractor from being paid for that steel again when it is used for another purpose.

It follows that the mere fact that H beams and saddles had been used as temporary works or temporary supports would not prevent Mercon being paid for the use of that steelwork on a re-measurement basis as sea-fastening and grillage steelwork.

Mercon relies on the evidence of Mr Simon that a rate of €5,729.90 per Mton should be used to value the sea-fastening steelwork. That is based on the rates for steelwork in attachment 5G. Bluewater relies on the evidence of Mr Dixon that a rate of €3,803.28 per Mton should be used. This is based on the rates charged by ASPO to Bluewater.

Mercon says that the tables in attachment 5G apply to a range of steel grades and that the rate used by Mr Simon was based on Mercon using the same grade of steel for seafastening at Gorinchem as it did for the other fabricated elements. Mercon relies on the evidence of Mr Wickerhoff that it was reasonable to do so because steel with a high tensile strength was needed in order to ensure the stability of the cargo. Mercon also points out that those rates were clearly intended to apply to sea-fastening at Astrakhan because item 7 of Attachment 5B expressly provides for sea-fastening to be calculated “as per Re-Measurement Tables of 5G”. Mercon submits that there is no reason, as

Bluewater submits that Mr Simon’s rates for fabrication grade steel are too high for sea-fastening steelwork, which should be made from lower grade steel. It relies on the rate which Mr Dixon derived by reference to actual cost of the sea-fastening used by ASPO with an appropriate uplift. If Mr Simon is wrong about the application of the Attachment 5G rates then he agrees in principle with the approach of Mr Dixon, subject to questions about the appropriate grade of steel and the necessary rate adjustments to take into account differences between Gorinchem and Astrakhan.

Under the Contract it is evident that the parties applied the rates in the tables at Attachment 5G to the sea-fastening and grillage steelwork at Astrakhan, as expressly stated in item 7 of Attachment 5B. Whilst Clause 3.3.1(x) of Section 5 of the Contract provides for new rates to be calculated where there is no applicable rate, in my judgment, this is a case where there is an applicable rate for sea-fastening and grillage steelwork and, as Bluewater itself submits, there is no difference in principle between the rates in Gorinchem and Astrakhan.

On that basis, I can derive the appropriate calculation from Appendix 1.1 (Revision 1) to the Experts’ Third Joint Statement. Using Mr Simon’s rate for Central Column, Topsides and Ballast Tank but allowing for 8Mtons already being included I allow a sum of €412,091.00

The parties agree the value of this credit to Bluewater at €558,600.04

Given that I have found that the provisional Variation Order VO-008, was not binding on the parties, Bluewater allows an additional €46,779.26 in relation to painting which is agreed by the quantum experts to be the appropriate valuation. The overall value of this item therefore becomes €322,394.77.

On the basis that I have found that the provisional Variation Order VO-008 was not binding on the parties, Bluewater contends that the allowance should be €86,515.69. Mercon claims €132,008.85.

The difference between the parties depends on whether Mr de Geus is correct in saying that the FSO Mooring Structure (FMS) and Hose Connection Tower (HCT) costs were included in VO-001, in which case the value would be €86,516.43.

VO-001 states that the Variation Order “is the full and final settlement of the WORK related to the FMS and HCT, including full and final settlement of Punch List and Action List Items.” Whilst, as Mercon states, the quantum experts have been unable to find any quantities within VO-001 for this item, the effect of VO-001 was to act as a full and final settlement of work related to the FMS and HCT and it is does not matter whether or not, in fact, there is in fact any allowance within VO-001 for that item. I conclude that the pipe supports for the FMS and HCT were settled within VO-001 and no further claim can be made for them. I note that Mr Wickerhoff accepted that this was the position in his evidence.

The proper value for pipe supports is therefore, I find, €86,515.69.

This is agreed at €792,185.70.

This is agreed at €532,399.78.

A deduction of €106,479.96 was included in VO-008 ‘pending cable check’ because Bluewater was unable to reconcile the claimed quantities of cable to the cable pulling cards.

Bluewater accepts that, taking “a pragmatic and fair approach” the deduction should be reduced by €81,479.96 to €25,000. It refers to Mr Wickerhoff’s evidence where he said that he did not check the measure and that the cable pulling records were not provided to Bluewater. Bluewater also refers to Mr Osmond’s evidence that the person from Mercon’s subcontractor who put together the figures was ill at the time so that final figures could not be dealt with. Bluewater says that, in the absence of any evidence as to how the original amount was assessed and in light of both parties accepting that a further assessment was necessary to justify the full charge, Mercon has failed to prove its case and Bluewater’s reduced deduction should apply.

Mercon claims that the deduction should be removed in its entirety as there was no requirement to check the quantities, which were derived, as the Contract provides, from the drawings. Mercon says that Bluewater has not put forward any evidence as to the basis on which €25,000, or any amount, falls to be deducted.

The quantum experts are not able to comment on this item. Whilst the deduction was originally made by Bluewater, I accept Mr Osmond’s evidence that it was made on the basis that Mercon could not provide final figures so that a check had to be made. Mercon has not sought to prove the figure for this item and in the absence of evidence of what sum should properly be allowed on the basis of a re-measure, I consider that the concession by Bluewater is the appropriate way to proceed.

The deduction should therefore be reduced from €106,479.96 to €25,000.00.

Mercon claims €52,767.43 for this item and Bluewater says that it should be valued at €30,000.00.

This is a star rate claim. Mercon supplied insulation through its subcontractor, Wiko Isolatietechniek, who set out relevant quantities in an invoice dated 31 July 2008. Bluewater says that, in the absence of any proof of the accuracy of the quantities, the court should adopt Bluewater’s figure of €30,000.00.

The quantum experts have not seen any documents which would allow them to check the quantities claimed by Mercon but have produced the quantification of €52,767.43 using more appropriate rates but assuming that the quantities are established. If the court is not satisfied with the quantities claimed, then the experts would endorse Bluewater’s figure.

I have seen the invoice from Wiko and note that it contains a detailed schedule to support the amount claimed and the detailed quantities. I consider that this evidence of the quantities is sufficient to establish the claim and I therefore base the value on the experts’ quantification of €52,767.43.

The single biggest item in dispute within the re-measure relates to Mercon’s claim for €2,070,000 for weld procedure documentation and qualification testing. Bluewater accepts a sum of €145,000 for this claim.

The Contract contains the following tables of rates within Attachment 5G, Measured Work Unit Rates:

A weld procedure specification (WPS) is a document defined at Section 6 of the Welding Specification. It gives directions to the welder for making a production weld of a particular type in accordance with the code or standard applicable to the project. A WPS is project-specific because it must meet the requirements of the project welding specification and specified welding code.

Each WPS must be “qualified”, that is proved to be adequate for its application, based on one or more tests. A weld procedure qualification record (WPQR) is a document defined in Section 7 of the Welding Specification which records a test procedure, variables, and the resulting data produced when the test is carried out and the results of subsequent tests. A single WPS may need multiple weld procedure qualifications (WPQs) to qualify it. Equally, a single WPQ may be used to qualify (or part-qualify) multiple WPSs. A WPQ is not necessarily project-specific. Contractors have a library of existing WPQs and these existing WPQs, if suitable, can be used to qualify WPSs on different projects. If no suitable WPQ exists then a new one must be prepared. This involves the production of a weld of the specific type, conducted under test conditions. It is then subject to non-destructive and destructive testing to demonstrate the quality and properties of the weld. It should be noted that Section 8 of the Welding Specification uses the acronym WPQ for welder performance qualifications but the experts and the parties have used WPQ to refer to weld procedure qualification related to WPQRs.

A crack tip opening displacement (CTOD) test is a fracture mechanics test carried out to confirm that the weld will not fail in brittle fracture. It is a sophisticated qualifying test only required for some weld procedures. It is an inherently costly test to perform.

The issue between the parties relates to which WPSs, WPQRs and CTODs are to be paid for at the unit rate in Table 4A. The parties are agreed that there is nothing in the Contract which explains how the rates are to be applied. Mercon claims that, in the absence of any particular description or qualification on the rates, those rates apply to any and every WPS or WPQR used by Mercon in the welding of the structure and it is entitled to payment at the stated rate. Bluewater submits that this was not intended. It relies on the evidence of Mr de Geus and Mr van Den Brule as to what was said about payment for welding procedures at a pre-Contract meeting held in Astrakhan on 13 and 14 September 2006.

Mr de Geus says that it was clearly understood at that meeting that Mercon and ASPO had “all the necessary weld procedures needed for completion of the work and that, where possible, Mercon would use its pre-existing welds in relation to any varied work”. He says that “we did acknowledge in the meeting that there was a possibility that some new weld procedures might have to be created (if there were variations to the works and Mercon did not have any suitable welds in its existing catalogue).” This he says led to Table 4A. Mr van Den Brule says “I do not agree that the weld rates would only apply to new welding procedures required by variations.” So far as the record of that meeting is concerned there is reference in the minutes to ASPO providing hourly rates and total costs for work such as “cost for qualification of welders and welding procedures”. A whiteboard was also used at the meeting which was photographed and includes the following: “Welding Procedure Qual[ification]s – based on existing prequalified [ASPO] proc[edure]s”.

In relation to weld procedure qualification, Mr de Geus deals generally with “weld procedures” rather than “weld procedure qualifications”. However he then says that “In other words it was agreed that the cost of a WPQR would include the cost of a WPS” and that a “separate charge would only be claimable from Bluewater if a new WPS was created that did not require new WPQR testing.” Mr van Den Brule says “If an existing WPQ can be used then there is no need for additional charges to Bluewater.” He says that the same principle applied to sub-contractors. “For example, if the sub-contractor had an existing WPQ that could be used without a charge to Mercon we would not charge again.”

There are a number of problems with this evidence. There is no case based on rectification of the Contract as a result of some pre-existing agreement. These discussions took place before Table 4A or the rates in it were produced. Mr Kees de Grijs of Mercon apparently produced them but he was not at the meeting on 13 to 14 September 2006. The Contract was then only signed incorporating Table 4A in March 2007. It is evident that Mr de Geus and Mr van Den Brule are not agreed as to what was said at the meeting as to the basis of payment for WPSs. In relation to WPQRs Mr van Den Brule suggest that no payment would be made for pre-existing WPQs whilst Mr de Geus’s evidence on WPQs deals with the fact that WPQs were only charged where new WPQs were required for new WPSs.

This I consider highlights why evidence of pre-contract negotiations is generally inadmissible in construing an agreement. Lord Hoffmann explained the exclusionary rule in Chartbrook Ltd v Persimmon Homes Ltd[2009] UKHL 38 at [42] in these terms:

“The rule excludes evidence of what was said or done during the course of negotiating the agreement for the purpose of drawing inferences about what the contract meant. It does not exclude the use of such evidence for other purposes: for example, to establish that a fact which may be relevant as background was known to the parties, or to support a claim for rectification or estoppel. These are not exceptions to the rule. They operate outside it.”

At [41] in relation to that rule he said this:

“The conclusion I would reach is that there is no clearly established case for departing from the exclusionary rule. The rule may well mean, as Lord Nicholls has argued, that parties are sometimes held bound by a contract in terms which, upon a full investigation of the course of negotiations, a reasonable observer would not have taken them to have intended. But a system which sometimes allows this to happen may be justified in the more general interest of economy and predictability in obtaining advice and adjudicating disputes. It is, after all, usually possible to avoid surprises by carefully reading the documents before signing them and there are the safety nets of rectification and estoppel by convention.”

The provisions in Table 4A have to be read in the context that the relevant work is being paid on a re-measurement basis. As Clause 2.1 of Section 5 of the Contract states the “provisionally estimated Measurement Price … shall be subject to actual quantities on shop drawing level in accordance with the provisions of this Section 5.” Clause 3.3.2 of Section 5 also provides: “All unit rates shall apply equally to executing the work in large or small quantities at all elevations in all positions and at all locations…”.

These provisions would mean that the rate for WPSs or WPQRs would apply to the actual quantities of WPSs and WPQs however large or small. The Welding Specification describes what Mercon has to provide in terms of WPSs and WPQRs. It is clear that there is no distinction drawn in Section 7 between pre-existing or new WPSs and it is clear that WPSs have to be specific to this project although a contractor will obviously have a library of WPSs from previous contracts on which it can draw to provide the project specific WPSs. Those WPSs then need to be qualified. Again in Section 8 there is no distinction between pre-existing and new WPQs or WPQRs. Nor is there any basis for saying that the price for a WPQR includes a price for a WPS.

Those provisions have to be read against relevant background evidence which might be derived from evidence of negotiations. Whilst evidently parties to this type of contract would be aware of WPSs, WPQs and WPQRs and would know, as is apparent from the meeting in September 2006, that contractors would have pre-existing WPSs and WPQRs, that does not assist in construing Table 4A, Section 5 of the Contract and the welding specification which in my view are clear. Nor does it mean that the Court can re-write the Contract so that it is more commercially advantageous to one party by seeking to write in the word “new” rather than “pre-existing” before WPSs and WPQRs or on defining what is meant by those terms when existing WPSs or WPQRs are used with a range of necessary changes to make them specific to this project.

Bluewater refers to the agreement by the expert welding engineers that it is industry practice to try to utilize existing previously qualified WPQs wherever technically possible. It also refers to their agreement that the cost would be included within the lump sum or measured rate in the contract price and that it is not industry practice to pay a manufacturer or contractor for the use of existing WPQs. Bluewater also says that the Contract was negotiated against an understanding that existing WPQs would be used if possible, in line with industry standards, but that the need for new WPQs might arise. It also says that the weld procedures form part of the ‘re-measureable’ section of the Contract but there is no inclusion or identification of the number of WPQs included within the base price.

Bluewater also submits that a similar submission applies in the case of WPSs. It refers to the agreement between the welding expert engineers that, although WPSs are project specific, where there is an existing appropriate WPS the production of the WPS for production is essentially administrative. The experts agree that it is not generally industry-practice for the project specific WPSs to be reimbursable.

On this basis Bluewater submits that if the Contract was intended to operate as Mercon contends, there should have been a base number of WPSs and WPQRs in Table 4A and the actual number would then be re-measured at the end of the works but the absence of a base number is only consistent with an intention that a base number of WPSs and WPQRs would not be re-measured but would be included in the steel rates in line with industry standard.

I do not consider that to be a sound argument. If the rates were to include for some but not all WPSs or WPQRs that would have to be a qualification to the rates but that is not to be found in the Contract. Rather, the fact that there are no quantities in Table 4A when the Contract provides that re-measurement should use actual quantities, strongly points to the opposite conclusion that there are no quantities included elsewhere.

Whilst both parties have engaged distinguished welding experts, the assistance they can give the court is limited. This is not a case where the meaning of technical terms, such as WPS or WPQ or WPQR needs expert evidence of industry practice or a relevant trade usage or custom has to be applied. Indeed the evidence shows that the particular charging structure under the Contract was not typical for this type of contract where WPSs and WPQs would be included in a lump sum or in the measured rates for the steelwork and would not be charged separately. On that basis to have a table of agreed rates for welding procedures such as that in Table 4A would not be usual. Therefore evidence of industry practice in terms of ways in which other parties agree payment for WPSs or WPQRs is not of assistance for this unusual bespoke provision.

It follows that I do not consider that the rates in Table 4A are only to be applied to new, as opposed to pre-existing WPSs or WPQRs, as Bluewater submits.

Bluewater raises a number of other points. It notes that Mercon only made its claim for payment under Table 4A in August 2008. Whilst Mercon may have made the claim comparatively late, in the absence of an estoppel or other ground, I do not consider this affects the position.

Bluewater also relies on Mr Hoogenboom’s email to Mr Van Den Brule in June 2007, which was forwarded to Bluewater. The email is in two parts. The first deals with WPSs and records as follows: “As per the contract, all welding procedure specifications for the above mentioned project shall be based on Previously Qualified Welding Procedures as be used on the AIOC – Azeri project…” In relation to WPQs,

Bluewater also seeks to derive assistance from the sums which have been inserted into Table 4A. It refers to evidence, accepted by Mr Hoogenboom, that it would take a welding engineer on average between 2 and 4 hours to review an existing WPS in order to determine its suitability and make any suitable amendments to it so as to obtain client approval. Bluewater also refers to Mr van der Brule’s evidence that, in relation to the rates in question, the margin was “approximately 40-50%” so that, Bluewater says, the rate of €7,500 would reflect costs to Mercon of approximately €3,750. From this it says that the rate cannot relate to an activity which would take 2 to 4 hours.

All that this indicates is that the parties have agreed a rate which may be advantageous to one rather than the other party. I do not consider that a back calculation of the rate, such as this, can be used to derive any assistance as to the interpretation of the Contract.

In relation to claims for WPSs and WPQRs produced by sub-contractors, Bluewater notes that whilst the tables in the Contract do not refer expressly to sub-contractor claims, a distinction is drawn between Table 4A (Gorinchem) and Table 4B (Astrakhan) and Table 4B does not include a line item ‘WPS’ and includes no rates at all. Bluewater says that the basis of the claim for weld procedures or qualifications undertaken at ASPO is not clear.

Mercon says that it is entitled to recover for WPSs generated by its subcontractors, including ASPO on the basis that Mercon subcontracted work with the consent of Bluewater and the welding done by Mercon’s subcontractors formed part of the services provided by Mercon to Bluewater under the Contract. Mercon says it is therefore entitled to charge for the WPSs necessary for that work just as if it had generated them itself.

The purpose of Table 4B is not clear. It appears to relate to or include NDT testing in Astrakhan and whilst it has rows for WPQs and CTODs in Astrakhan it includes no rates at all. It says nothing about WPSs. The currency is noted to be US$. Whilst it is correct that Table 4A is noted as Gorinchem and Table 4B as Astrakhan, it is not clear that Table 4B which has not been completed was intended to apply no rates to whatever NDT examination was carried out in Astrakhan. It is more likely that by not completing that table, Table 4A was intended to be of general application. I consider that Table 4A was intended to cover work which Mercon carried out and did not depend on that being carried out geographically in Gorinchem. I consider that there is strength in Mercon’s submission that whether Mercon carried out the work itself of sub-contracted the work it was entitled to be paid at the same rate. Given that there is not clear explanation for

In respect of sub-contractors Bluewater also seeks to rely upon the evidence of Mr van der Brule that “if the subcontractor had an existing WPQ that could be used without a charge to Mercon we would not charge again” and to the lack of evidence that Mercon was charged by its subcontractors. For the reasons given above that evidence is not admissible. It would seek to introduce a wholly new provision that the rates only applied insofar as Mercon was “charged” by a sub-contractor for the WPQ. That is not a possible reading of the terms of the Contract.

In relation to the rate for WPQR Bluewater refers to the agreement between the expert welding engineers where they agreed: “that if welding procedures are being carried out in accordance with a schedule or rates then in standard industry practice the rate for a new WPQ would include the cost of the pWPS, and generation of a new WPQ would include the writing of the WPS derived from it for that project.” On this basis Bluewater submits that, in this case, standard industry practice should be applied so that the rate for a WPQR would be inclusive of the relevant WPS. However, as Mercon points out, Mr Denney says in his report that this would only be applicable where there is a one-toone relationship between the WPQ and WPS, which is rarely applicable in structural work compared to, for example, pipelines. In structural work, asillustrated by this case, WPSs may be qualified by multiple WPQs and sometimes, as shown here by WPS 2125-17, by a combination of new and pre-existing WPQs. Equally, a single WPQ may qualify more than one WPS.

For the reasons given above I do not find standard industry practice assists. It may explain what other parties who have adopted standard industry practice in their contracts might have meant by those contracts. However, in this case the parties have adopted procedures for payment which do not conform to standard practice and so the standard practice cannot be used to interpret the Contract where the charging basis is not typical.

In relation to WPQRs, Bluewater also raises a number of detailed points which I must deal with.

First, Bluewater refers to the fact that Mercon did not obtain approval from Bluewater before carrying out WPQs in way they did. It says that whilst Mercon relies on all the WPSs being stamped for production, except for one, the WPQRs are generally not stamped as approved by Bluewater and the preliminary WPSs (pWPSs) are also generally not stamped.

Bluewater says that it was a requirement of Clause 201 of the DNV welding code used as the Welding Code of Practice in this case (DNV-OS-C401) for Mercon to obtain approval and agreement of a pWPS before carrying out the qualification. That Clause provides: “201 A pWPS shall be prepared for acceptance by the purchaser prior to starting up the agreed welding procedure qualification test (WPQT)”.

Bluewater says that Mercon failed to ask Bluewater for approval of the pWPSs/WPQ prior to qualification testing, as required by the Code and if approval had been sought then Bluewater could have controlled the number of WPQs at the appropriate time.

Mercon denies that it was under any obligation to have sought acceptance prior to proceeding to test, rather than approval prior to production. It accepts that it did not seek any acceptance prior to carrying out the weld tests.

Whilst it seems that DNV-OS-C401 was the Welding Code of Practice used, the Welding Specification (BWS-P-100-SP-9902) was the specification referred to in Attachment 6B to the Contract. At Section 4.2 of the Welding Specification the relevant design codes are cited and do not include the DNV Code. In addition the Welding Specification contains no requirement for Mercon to seek approval of a pWPS prior to undertaking any WPQ.

It is evident from the documents that Bluewater introduced the DNV code and there is reference to welds being qualified under both codes. The most complete picture of how this developed is contained in Mr Denney's report at Section 7. He refers, in particular, to the Specification “Fabrication of Steel Structures for Arctic Conditions”, LUK-S-

As a result, whilst Bluewater seeks to distinguish between pre-existing and new WPQs and CTODs and between WPSs based upon pre-existing WPS templates and new WPSs, that distinction is not an appropriate one to make in relation to claims by Mercon for payment at the rates in Table 4A.

Mercon’s original claim was for 87 WPSs at €7,500.00 each, giving a total of €652,500.00. In Appendix 1.4 Revision 1 to the Quantum Expert’s Fourth Joint Statement the experts have agreed that on the basis of Mr Denney’s evidence there are 84 WPSs at €7,500.00 each, giving a total of €630,000.00. On the basis that I have held that Mercon is entitled to payment for WPSs at the rates in Table 4A, it follows that Mercon is entitled to €630,000.00.

Mercon’s original claim was for 99 WPQRs at €15,000.00 each, giving a total of €1,485,000.00. In Appendix 1.4 Revision 1 to the Quantum Expert’s Fourth Joint Statement the experts have agreed that on the basis of Mr Denney’s evidence there are 92 WPQRs at €15,000.00 each, giving a total of €1,380,000.00.

There are 11 WPQRs which for a number of reasons are disputed by Bluewater and which I need therefore to consider.

Bluewater says that this is a wire verification test, not a qualification and it arose out of Mercon’s choice of material for a more economical process. Bluewater says that there is no basis upon which to make any charge under Table 4A.

Mercon says that, as Mr Denney explained in his evidence, it was obliged under the AWS D1.1 code, which was part of Bluewater’s welding specification, to carry out a consumable verification test on the particular welding wire it had decided to use. This was part of welding procedure qualification under the requirements of Section 4 Qualification, Clause 4.11 Fillet Welds for Tubular and Non-tubular Connections. It says that neither of the experts suggested that there was anything unreasonable in Mercon using that wire.

Under the Welding Specification incorporated into the Contract, the relevant code for Welding Procedure Qualification was AWS D1.1 which required a Consumables Verification Test under Clause 4.11.3 to qualify the relevant WPS if the conditions there applied. The choice of consumables was a matter for Mercon but it was necessary to qualify the welding wire and I consider that Mercon was entitled to be paid for this WPQR, MC682-A.

Bluewater says that this WPQR related to “buttering” and was required to remedy a non-conformance by Mercon and therefore is not a WPQR for which Mercon can charge under Table 4A.

Mercon accepts that it would not be entitled to payment for additional welding procedures caused by fabrication errors. However, Mercon says that the fact that buttering was required does not mean that there was such an error. It relies on Mr Denney’s evidence that “it is an established thing that you will get situations where you have to do buttering on any offshore platform of this degree of complexity. The tolerances on the members are such that buttering procedures almost inevitably occur”.

The need to butter joints would apply where there were excessive gaps but, as the later specification states, that arises because fabrication gaps may not be within the general tolerances and will need buttering. I do not consider that this amounts to a nonconformity but was rather part of the procedures necessary to fabricate steel structures. It is therefore a procedure which requires qualification and I consider Mercon would be entitled to be paid under the provision of the Contract for that WPQR, MC 698.

Bluewater says that where Mercon separately qualified both manual and mechanical/automatic welding processes, this was not necessary under DNV Code. It says that the qualification of four procedures should be reduced to two as MC6821/MC682-2 and MC682-3/MC682-4 are qualifications for similar welds carried out, respectively, manually and automatically/mechanically. Bluewater refers to Mr Teale’s evidence that, under the DNV Code, Mercon could have qualified the manual process and used that for the automatic process because under that code the process was not an essential variable whereas it is under the European, EN Code.

Bluewater also says that whilst general practice would assume separate qualification for manual and mechanical processes, this is because the mechanical process is normally associated with significantly higher heat input ranges but, in this case, the heat input range of the two WPQs undertaken manually and mechanically was materially identical.

In addition, Bluewater says that, taken individually, the qualifications were not compliant as only one macroscopic test was provided but, taken in pairs, the qualifications would have been likely to have been acceptable as evidenced by DNV approval as there were then two macroscopic tests. It says that there is no evidence that the qualifications were or would have been acceptable in isolation.

Mercon refers to Mr Hoogenboom’s evidence that although it was possible to use manual qualification for a mechanical weld, which would not be contrary to the DNV code, the parameters for manual welding differ from the parameters for mechanised welding which have a higher deposition rate and so higher voltage, higher amperage and higher energy. Although Mercon accepts that the difference between manual and automatic welding is not an “essential variable” under the DNV code, Clause C500 of the code envisages separate methods of testing for manual and automatic welds with different test plate lengths. Mercon says that it acted reasonably in carrying out the four WPQRs for WPS 2125-12 and the documents were signed off as approved by both Bluewater and DNV

Mercon says that there is some confusion about whether only one macroscopic test had been carried out rather than the two required by the DNV code and it is debatable whether only one test was apparent from the face of the WPQs. In any event Mercon says that the WPQRs were approved.

I consider that, as evidenced by what was done by Bluewater and DNV at the time, it was reasonable for Mercon to qualify WPS2125-12 separately for the manual and the automatic processes which involved different parameters and had to be carried out on different test lengths under the DNV code. I do not consider that the issue of whether the different processes amount to “essential variables” is a matter which determines the reasonableness of Mercon’s decision to carry out separate qualifications for the manual and automatic processes.

So far as whether two macroscopic tests were carried out, it is not clear whether or not two were carried out. However the tests were approved and no concerns were raised at the time by Bluewater or DNV and I consider that this cannot now affect Mercon’s right to payment for the approved WPQRs.

Accordingly, Mercon is entitled to payment for WPQRs MC682-1, MC682-2, MC6823 and MC682-4.

Bluewater says that in relation to fillet welds there should be a single qualification dealing with a single and multi-pass process. Mr Teale said in his report that MC 684, 685, 686 and 687 should have been combined into a single WPQR and MC 688, 689, 690 and 691 should also have been combined into a single WPQR. In his supplemental report he says that MC 686, 687, 688, 689, 690 and 691 should have been combined into three WPQRs. Bluewater therefore submits that Mercon should recover for three not six WPQRs.

Mercon says that to combine the six WPQRs as three would have required combined qualifications for single-pass and multi-pass fillets but that, as with the separation of manual and automatic welding processes, it was a reasonable welding judgment to have separate WPQRs. Mercon also refers to DNV-OS-C401 at Clause C704 which states that “The following changes shall lead to a new qualification…change from multi-pass welding to one-pass welding” and says that this justifies separate qualification.

Mercon also relies on Mr Denney’s analysis of the evidence which he says leads him to conclude that DNV required the qualifications to be split. Bluewater says that this is not borne out by the documents relied on by Mr Denney.

Again I consider that based upon the DNV code it cannot be said that it was unreasonable for Mercon to have separately qualified single-pass and multi-pass WPQRs. Indeed the change in Mr Teale’s evidence indicates that it is acceptable. I have considered the documents relied upon by Mr Denney to conclude that DNV required the qualifications to be split. I am not convinced that the manuscript note concerning Clause C500 of the DNV Code and MC657 to 660 bears any relevance to the particular issue related to single and multi-pass fillet welds. I therefore do not base any conclusions on that note.

As a result for the reasons set out above I consider that Mercon is entitled to be paid for WPQRs MC 686, 687, 688, 689, 690 and 691.

As set out in Bluewater’s Closing Submissions, MC699 and MC704 are no longer disputed. In relation to the two other WPQs, Bluewater says that Mercon should not be paid for MC692 as it relates to the MPU project and Mercon should not be paid for MC700 as it was not stamped by DNV.

Mercon says it is clear that MC692 was always part of Mercon’s claim and was created for the project. In relation to MC700 it says that this was always part of Mercon’s claim.

These WPQRs were not provided to Mr Teale and in Bluewater’s Further Information on Weld Procedures there was no comment on these WPQRs. I consider that MC692 was likely to have been given the wrong title probably because of the use of the original template. In relation to MC700 it is clear that it formed part of the necessary qualification procedure and whilst the copy in the documents is not signed by DNV there is no evidence to show that DNV disapproved it and it seems likely that it was not signed in error. All of these matters were raised too late by Bluewater for the matter to be properly dealt with.

I therefore consider that, in addition to MC699 and MC704 which are now accepted by Bluewater, Mercon is entitled to be paid for WPQRs 692 and 700.

On that basis I have found that the 11 WPQRs which are specifically challenged by Bluewater have been correctly claimed by Mercon. It therefore follows that, as stated by Mr Denney, Mercon is entitled to claim for 92 WPQRs at €15,000.00 each, giving a total of €1,380,000.00.

Mercon claims for three CTODs at €20,000.00 each, giving a total of €60,000.00. Whilst Mr Denney has identified a further fourth CTOD, that does not form part of Mercon’s claim.

Bluewater accepts that Mercon is entitled to claim two of the three ‘new’ CTODs but in relation to the third CTOD says that this is attributed to Mercon’s sub-contractor, SIF and the CTOD itself was not carried out by SIF, but by Bluewater, as stated by Mr Spelt at paragraph 6 of his third statement. As a result it says that Mercon cannot charge Bluewater for a CTOD carried out by Bluewater.

Mercon accepts that one plate was welded by SIF at Bluewater’s request and was handed over to Bluewater for testing. In Appendix I to Mr Denney’s report, SIF item 15 concludes by saying “No mechanical or CTOD tests were performed on this test plate by Mercon or SIF.” This confirms Bluewater’s position.

I consider that Mercon is entitled to claim for two of the CTODs. Two are accepted by Bluewater. I consider that SIF 9433 is not recoverable on the basis that, as is common ground on the evidence, the CTOD was performed by Bluewater.

It follows that Mercon is entitled to claim €40,000 for the two CTODs.

On that basis I consider that Mercon is entitled to recover for 84 WPSs at 7,500.00 each (€630,000), 92 WPQRs at €15,000.00 each (€1,380,000) and two CTODs at €20,000 each (€40,000), making a total of €2,050,000.00.

The parties agree the value of this item at €60,595.20.

Mercon agrees that the original allowance in VO-008 for this item of €4,063,918.67 is correct and does not pursue any additional amount under this heading.

Mercon claims that as a consequence of the increase in the size of the SYMS components which Mercon had to fabricate and assemble, its installation costs for equipment increased to €139,946.40, as set out at paragraph 2.4.2.10 and in the table attached to the financial claim at Appendix 9 to the Defendant’s Response to the Claimant’s Part 18 request for Further and Better Information dated 15 June 2010.

Bluewater contends that no sum is due on the basis that VO-008 is binding but pleads, on its alternative case that, if VO-008 is not binding, then Mercon is entitled to €31,946.40.

The dispute is dealt with in Mr de Geus’s first witness statement at paragraphs 47 to 50 where he says that items totalling €108,000 are not payable. These items relate to work on the installation of the Yoke Hinge. He says that item SR1.5 (Installation Roll and Pitch Bearing of Yoke Hinge) was included in the original lump sum price for the yoke arm. However, as I have found and as Mercon submits, the Yoke Hinge was originally to be provided as a completed item for welding to the yoke end and no mechanical installation would have been required. I therefore consider that Mercon is entitled to be paid for this item. Mr de Geus says that the four items in SR1.6 relate to “trial fitting and rotation testing” of the yoke system involving the final installation of Yoke Hinge components and that these come within Clause 7.27 of Section 3 of the Contract. However as the yoke system was no longer going to be assembled in Astrakhan, no trial-fit of the system took place there and so Clause 7.27 became redundant and Bluewater wrote to Mercon on 7 August 2008asking for a rebate for not having to carry out the trial fit and rotation test of Yoke Arm. This aspect is dealt with under VOR-162 and I do not consider that the installation work came within Clause 7.27 but, rather, that Mercon was entitled to be paid for the installation work.

The experts say that they have been unable to value this claim in the absence of information relevant to the question of reasonableness of rates. However, in circumstances where it is evident that Mercon were obliged to carry out this work and where Bluewater does not challenge the rates for the smaller items, I consider that the overall sum of €108,000.00 appears reasonable for the necessary installation work. This work was not however carried out by the date of termination, as I have found elsewhere and therefore this is not a sum due to Mercon. Rather the balance of €31,946.40 is due.

Bluewater claims a reduction on the re-measured price of €155,998.00because Mercon reduced the number of radiographic weld tests it undertook. Radiographic testing was required under Clause 8.44 of Attachment 6B, exhibit C of the Contract for 100% of piping weld joints and butt and eye welds and for 10% of steel structures weld joints. It was also dealt with at Section 3.7 of the Welding Specification BWS-S-100-SP9902/Rev 1.

At an early stage of the project, Mercon submitted Technical Query, Clarification and Deviation Request No 029 (TQR-029) in which it sought Bluewater’s permission to replace the radiographic tests on structural steel but not piping welds with ultrasonic testing and magnetic particle inspection. Bluewater approved the change “without comments” on TQR-029.

Weld testing (whether radiographic or ultrasonic) is not charged separately but under Clause 3.3.1(a) of Section 5 of the Contract is deemed included in the measured rates for steelwork and piping. No variation of the price was requested by Bluewater or agreed by Mercon in relation to the change in testing.

Mercon says that, in those circumstances, there is no basis for any change to the measured rates which might lead to a reduction in the re-measured price and Bluewater

Bluewater’s claimed reduction is based on an estimated reduction of 80% in the number of radiographic tests which would otherwise have been done and on the extra time which would otherwise have been taken to carry out radiographic rather than ultrasonic tests. It is based on “rough man hours” assessed by Mr Spelt as set out in paragraph 19 of his witness statement. He explains that he was asked for ballpark manhours on 19 October 2007 and produced these on 17 February 2009.

The quantum experts were unable to comment on the sum claimed but noted that in general ultrasonic tests are cheaper than radiographic tests.

Bluewater approved a different regime of testing at Mercon’s request and this was evidently approved by DNV. It reduced the amount of radiographic testing and should have been the subject of a change to the steelwork rates to allow for this change in NDT of the steelwork included in the rates. Mr Spelt attempted to put together a figure some 18 months later. However it is unclear where he obtained the information to do so. In addition, the quantum experts have been unable to assist in arriving at a rate and there is no indication of whether the overall sum is reasonable. It is noted that it is only a “ballpark” or “rough figure”. In the circumstances I consider that Bluewater is entitled to a reduction but given the uncertainty of the figure, I consider Mr Spelt’s calculation should be heavily discounted and I consider that an allowance of €50,000 is appropriate in those circumstances.

As set out above I consider that the value of the re-measure in VO-008 should be €12,860,826.03 as follows:

Under Attachment 5G, Table 10 in Section 5 of the Contract Bluewater is entitled to a discount on the total value of measured work Variation Orders on a sliding scale of rates.

Bluewater claims a 5% discount on the total value of VO-008. Mercon contends that the discount applies not the totalre-measured price in VO-008 but to the increasein the re-measured price effected by VO-008 over the original provisional sums of €5,373,670 set out in Attachment 5B of the Contract.

Mercon submits that the obvious commercial purpose of the discount was to give Bluewater better terms if there was an increase in quantities because more work was ordered than the parties had envisaged and not to give a further discount on a price that had already been provisionally agreed for the original scope. It says that if the discount applied to the total re-measured price, then the parties could have agreed lower rates in the first place.

Attachment 5G, Table 10 provides for a gradated discount. It refers to “Measured Work Unit Rates (Discount on total value of Variation Orders). It refers to the Total Value of Variation Orders and shows a discount of 5% where the Total Value of Variation Orders is above €1,000,000.

Whilst VO-008 has been produced to show the re-measure, I consider that Mercon is correct and that the discount was intended to apply to the true value of the Variation Order which would be the value over the “provisionally estimated Measurement Price” as identified in Clause 2.5 of Section 5 of the Contract. On that basis, the total included in Sections 4, 5, 7 and 8 for re-measured work is €5,373,670.67 and I consider that the discount should apply to the excess value of VO-008 above that figure. As set out below the remeasurement total is €12,860,826.03. When €5,373,670.67 is deducted this gives the total value of Variation Orders of €7,487,155.36. Applying the discount of 5% to this gives a discount figure of €374,357.77.

In relation to VO-001, as set out below, I do not consider that Bluewater is entitled to a discount.

The Contract Price included a reimbursable component to cover work generally described as “Assembly/Integration” at Astrakhan which was intended to be carried out

Mercon subcontracted the reimbursable integration work in Astrakhan to ASPO and claims reimbursement (plus a mark-up) based on timesheets submitted under cover of invoices issued by ASPO. There are 33 relevant ASPO invoices based on ASPO’s net time rates included in Attachment 5C2.

In paragraph 2.5 of the First QS Joint Statement the quantum experts agreed:

“As a matter of general principle, we agree that Mercon’s entitlement to payment from Bluewater under this claim is limited to (a maximum of) the value of the invoices which it actually paid to ASPO (i.e. before consideration of the merits of the relevant invoices and any further issues (if any) as to what credit Bluewater may be entitled. That is to say, it is not entitled to recover payment for invoices which it did not pay, although the position on mark-up requires separate consideration.”

Mercon originally claimed a total of €1,965,207.74 for Reimbursable Work (€3,363,419.20 less €1,407,211.46) but following the quantum experts’ agreement set out above the claim for Reimbursable Work has now been reduced to €1,622,190.76.

The amount of the claim depends on a number of issues to which I now turn.

After Bluewater terminated the Contract it entered into a direct contract with ASPO dated 10 March 2009 (“the Payment Contract”) under which it agreed to pay ASPO directly in respect of all of the ASPO invoices said to be outstanding from Mercon.

Mercon accepts that it cannot pursue claims against Bluewater for reimbursement of amounts that it was invoiced by ASPO but has not paid to ASPO, if it will not now be called on to pay them to ASPO. However, Mercon says that it remains entitled to its mark-up on the value of the invoice, so that it is still necessary to decide whether the invoice would have been reimbursable.

Mercon says that ASPO appears to have given Bluewater inaccurate information about the outstanding invoices and it contends that, as a result, some of the ASPO invoices have been paid twice, by both Bluewater and Mercon and some have not been paid at all. Mercon says that, to the extent that Bluewater has made double payment, that is a matter for which Bluewater cannot claim a credit from Mercon.

Mercon admits a credit of some €1,407,211.42 against the total reimbursable claim of €3,363,419.20. Bluewater claims a higher credit for reasons connected with Mercon’s purported re-allocation of invoices.

Bluewater says that there is difficulty in determining the amount Mercon paid ASPO and, more specifically, in respect of which ASPO invoices. Bluewater says that this difficulty arises as a result of Mercon’s letter of 30 January 2009, sent to ASPO just before the termination. In that letter Mercon sought to reallocate payments made against specific invoices to different invoices and also made a balancing payment which was not specifically allocated to particular invoices. Bluewater submits that the re-allocation was not permissible and should be ignored.

In their Second Joint Statement at paragraphs 2.1 to 2.11, the quantum experts have discussed the implications of this repayment and have considered the position on the alternative assumptions that Mercon was, and was not, entitled to undertake the reallocation.

In their Third Joint Statement the quantum experts have considered the invoices which were not paid by Mercon to determine whether the sums would have been properly reimbursable if paid by Mercon. This assessment is relevant to the Post-Termination Damages claim in which Bluewater claims from Mercon the so-called “ransom payment”. This is the payment it made to ASPO after the termination of the Contract which included sums purportedly part of the reimbursable work which were in fact not due for reimbursable work.

On the pleadings there was an issue of the extent to which Mercon could only recover reimbursable costs if it could demonstrate that it had incurred such costs and actually paid them to ASPO. Given the quantum experts’ agreement, it is now accepted by Mercon that it can only recover for the value of the invoices which it actually paid to ASPO.

Bluewater submits that the mark-up on reimbursable costs is dealt with under Clause 4 of Section 5 of the Contract and is to be calculated in accordance with Attachment 5E, Mark-up for Reimbursable Costs. It says that, under Clause 4.5, the reimbursable costs are to be invoiced upon completion of related activities and that, as a result the sliding scale mark-up in Attachment 5E applies to related activities. It says that the quantum experts have categorised the invoices into different activities which represent the relevant “related activities” for the purposes of the application of the mark up. It submits that if the mark-up applied to individual invoices then this would permit the invoices to be manipulated so that they fell within a particular band to attract the greatest mark-up and that this cannot have been intended.

Mercon submits that in relation to work falling within Clauses 4.1 to 4.3 of Section 5 of the Contract, the mark-up in Attachment 5E applies to the total cost of each invoice and not to the total cost of each related activity. However Mercon submits that those provisions do not apply to the integration works carried out at ASPO because those were subject to the rates in the table at Attachment 5C2 and it was agreed that Mercon would be paid a flat rate mark-up of 8% based on the total value of each of ASPO’s invoices rather than on the sliding scale in Attachment 5E.

Mercon refers to Attachment 5B, Total Provisional Contract Price Breakdown, where item 6 states that the reimbursable costs excluding mark-up are as per the unit rates in Attachment 5C2. Mercon says that the original scope of the reimbursable work at Astrakhan was described in more detail within the Contractors Execution Plan in Attachment 9A, where the reimbursable activities were marked “R” as “Reimbursable + 8%” or “LP” as “Lifting Price/Reimbursable + 8%”. On this basis it says that the clear intention was that an 8% mark-up would be applied to all integration work at Astrakhan, otherwise it is hard to see the purpose of the reference to 8%. Mercon also says that this is clear from its tender dated 3 October 2006where it stated, “We propose an 8% uplift on all JSC “Astrakhan Korabel” activities” and then on 7 December 2006

Mercon says that Clause 4 of Section 5 of the Contract relates to an entirely different kind of reimbursable cost and applies if Mercon is asked by Bluewater to procure materials, equipment or third party services for which there are no unit rates in the contract, such as the Yoke Hinge. It says that the sliding scale in Attachment 5E which applies to that type of work does not apply the integration work in Astrakhan because it would make no sense to have a sliding scale for that work where it was obvious from the outset that the total costs would far exceed €500,000.

Bluewater says that Mercon’s reliance on“+8%” in Attachment 9A is misplaced and there is no support in the Contract for the distinction which Mercon seeks to draw between the reimbursable integration work and the provisions of Clause 4 of Section 5 of the Contract. In addition as a matter of priority of contractual documents then the provisions of Section 5 override those in Section 9, as stated in the Form of Agreement. Bluewater also says that the distinction between rates in Attachment 5C2 and costs referred to in Clause 4 is artificial as the cost rates which Mercon agreed with ASPO are the same as the rates agreed in Attachment 5C2. Bluewater says that Mercon’s submission is also inconsistent with Mercon’s own approach to VOR 255 where it applied the sliding scale in Attachment 5E.

I consider that the provisions of Clause 4 of Section 5 and Attachment 5E of the Contract apply to the integration work to be carried out by ASPO at Astrakhan which was referred to as a Reimbursable Sum at item 6 of Attachment 5B. The reference to Attachment 5C2 in item 6 of Attachment 5B makes it clear that those unit rates are to be applied. Attachment 5C2 refers to all costs being deemed to be included in the tables in that attachment and refers to “costs” many times on page 3 of 4. In my judgment that attachment contains rates which are intended to reflect costs. They are therefore consistent with the provisions of Clause 4.1 to 4.3 of Section 5 of the Contract which refer to cost and which state that the percentage mark-up is to be in accordance with Attachment 5E.

It follows that, in my judgment, the provision in Clause 4.5 of section 5 applies so that the reimbursable costs have to be invoiced upon completion of related activities. This, I consider, means that the invoices have to be prepared on the basis of an invoice on completion of related activities. The mark-up will then relate to the reimbursable costs calculated by applying the rates in Attachment 5C2 and that sum will determine which band within Attachment 5E applies to give the relevant percentage mark-up. Any danger of manipulation is avoided because the invoices have to be prepared on a particular basis. There could be some room for argument as to what was a related activity but, in this case, I agree with the way in which the quantum experts have categorised the invoices into different activities and I consider that those categories represent “related activities” for the purposes of the application of the mark up.

I do not consider that the exchange of correspondence pre-contract referring to 8% is either admissible or would assist in construing the terms of the Contract which includes Clause 4 of Section 5 and Attachment 5E. Whilst Attachment 9A refers to “Reimbursable + 8%”, that is to identify the fact that items marked “R” are reimbursable under the Contract rather than setting up a separate payment regime, outside the contractual provisions as to payment in Section 5 and one where a mark-up of 8% applies. If it were necessary, I consider that Bluewater is correct in pointing out that under Clause 2 of the Form of Agreement Section 5 takes precedence over Section

Item 6 of Attachment 5B of the Contract is in the total sum of €2,137,320 but, as appears from the Incentive Scheme, that scheme was only to apply to €1,559,000, a difference of €578,320. It is common ground that Mercon was entitled to be paid for the upgrade works carried out at ASPO’s yard in Astrakhan and that an allowance of €578,320 was made for it in the Reimbursable Price which was not to participate in the Incentive Scheme.

Bluewater says that it has made a nil allowance for yard improvement works because the works were not, in fact, carried out. Mercon claims €578,320 for what it says are more correctly described as ‘mobilization and demobilization of ASPO’s yard’ rather than Yard Improvements Little Holland I.

The issue between the parties is whether that amount of €578,320 was agreed as a fixed lump sum or whether it was a provisional reimbursable amount, so that only the actual costs of the upgrade are recoverable.

The Contract does not separately identify the sum of €578,320 but Mercon says that, at a meeting on 15 January 2008 between Bluewater and Mercon, it was agreed that the amount of €578,320 should be treated as a lump sum and for this reason it was excluded from the Incentive Scheme in Attachment 5B. Mercon therefore claims €578,320on this basis. In the alternative, Mercon claims reimbursement for the amount it paid to ASPO under ASPO invoices 2008-02, 2008-33, 2008-55 in a total amount of €390,000, which it says is all referable to item 7 in the scope of work in the Mercon/ASPO contract: “mobilisation and demobilisation of the assembly site”. It refers to the description of the work at section 3.3.8(a) of that contract. Mercon says that it paid €312,000 under the first two invoices and claims reimbursement in that amount plus mark-up of €24,960.

Bluewater says that the evidence does not establish any agreement on 15 January 2008. Rather Bluewater says that, as Mercon accepts, Section 9 of the Contract provides by reference to the drawing of the yard support base, “Yard preparation is Reimbursable for yard upgrade”. It also provides that “The preparation of the concrete foundation is included in lump sum price.” Bluewater says there is no separate lump sum for the yard preparation and so the lump sum referred to is the preliminaries for the works at ASPO.

Bluewater therefore says that Mercon is entitled to be reimbursed for costs insofar as they are for ‘yard upgrade’ works properly so called and do not include any concrete foundation costs. Given that the sum claimed is limited to invoices paid of €312,000, Bluewater says that the total reimbursable price that Mercon might be entitled to recover is €282,400 being €312,000 less €29,600. Bluewater says that there is no basis for claiming those costs regardless of whether yard improvements had been carried out. Bluewater notes that it is not part of Mercon’s positive case that the works have been carried out and Mercon does not particularise what works are included in “amongst other things, its assembly site mobilisation and de-mobilisation costs”. Bluewater also says that little detail can be gleaned from the relevant ASPO invoices.

I do not consider that there was any relevant agreement made on 15 January 2008. The notes of the meeting refer to Attachment 5B of the Contract at Item 6 in the sum of €2,137,320 and refer to the Incentive Scheme and the figure of €1,559,000 and then state “The Balance is LS already: 578,320”. That is a statement made after the Contract had been entered into recording a view as to what was included in the Contract. Whether that is what the Contract included is a matter for construction of the Contract on which subsequently expressed views are not admissible.

Item 6 of Attachment 5B of the Contract identifies the sum of €2,137,320. By reference to the Incentive Scheme it is possible to identify that there was a sum of €578,320 which was included in the sum of €2,137,320. On that basis I do not consider it to be arguable that the sum of €578,320 related to a Lump Sum item. It was part of the work to be paid for on a reimbursable basis at the rates in Attachment 5C2.

As a result, on the basis that the yard improvement work was included in item 6 then Mercon were entitled to be paid for that work on a reimbursable basis of those rates.

The quantum experts have considered this claim and at paragraph 2.83 of their First Joint Statement they refer to the invoices which are relied upon by Mercon to establish a claim on a reimbursable basis. They conclude as follows as to this claim: “we remain uncertain as to what amounts may be due to Mercon”. They say that the claim is based on 80% of Project Milestone 7 in the ASPO/Mercon sub-contract but invoices 2008-02 and 2008-33 do not make reference to that Milestone and invoice 2008-55 was not paid by Mercon.

On this basis I do not consider that Mercon has established its entitlement to be paid for the relevant work on a reimbursable basis.

Bluewater refers to items 5 and 6 in Attachment 5B to the Contract which relate to “Supply/Fabrication/Erection SYMS Substructure – Astrakhan” and “Assembly/Integration” in Astrakhan. Item 5 is re-measured work and Item 6 is reimbursable work. It says that the extent to which there might be an overlap is something which Mercon has not taken into account in its approach to identifying work by relying on Attachment 9. Bluewater says that because of the change in the SYMS the scope changed. Originally, the integration and assembly of the jacket involved building the substructure up to the Central Column so that assembly and integration were one item of work but what actually happened was the entire substructure was erected in advance of the arrival of the Central Column leaving only some 8 integration welds to perform. Also Bluewater says that the substructure changed thus changing the nature and scope of the integration and assembly work. Bluewater refers to the fact that post-contract in the knowledge of these changes the parties agreed rates for the substructure which were identical to those applied in Gorinchem.

Bluewater says that the potential for overlap was identified by Mr Dixon and accepted in evidence by Mr Simons. Bluewater submits that Assembly and Fabrication are essentially the same thing and that Mercon has charged twice for the same service, both through the sum of €330,738.88 that Mr Dixon identified in his evidence as being included in the re-measure for fabrication and the €600,000 paid (out of a total claimed of €931,325) for the assembly work as part of the reimbursable work.

During the hearing I dealt with a number of issues by way of concurrent expert evidence. One of those issues, Issue E, raised this question: “Is assembly of the SYMS substructure covered in whole or in part by the steelwork erection prices in the remeasure or is it part of the reimbursable work-scope? During that evidence it became clear that whilst Mr Dixon had identified the potential overlap referred to above, he was not saying that there was in fact some duplication although he said there could be a complete overlap. Mr Simons accepted that there could be an overlap but again had no means of identifying it.

In the light of that evidence and without a specific overlap being identified I do not consider that I am able to take any potential overlap into account. I am therefore unable to say that Merconis claiming for works as reimbursable work when it ought to be compensated for those works elsewhere in the re measure or a lump sum. I shall however bear the issue in mind when I consider the individual claims.

Bluewater submits that if the ASPO timesheets are to be used as a basis for assessment, then the sums claimed should be reduced by 5%. It refers to the fact that, as the quantum experts agreed, based on a random sample, the timesheets supported only 95% of the hours claimed. The experts recorded in their First Joint Statement that “The degree of accuracy between the hours recorded on the timesheets and those claimed in the September invoices is approximately 95%.”

Further Bluewater says that, as noted by the experts, the timesheets signed by Bluewater have the word “Review” circled by the signatory. Bluewater submits that “Review” indicates that Bluewater intended to review the timesheets further rather than that they had been reviewed by them, otherwise the signatory would have circled the “Accept” box or otherwise “Witness” box if they had witnessed the hours being spent.

Bluewater also says that Mercon must show that the time was “productive” and did not fall within any of the categories of disallowed time in clause 3.2.2(g) of Section 5 of the Contract. In particular, under Clause 3.2.2(g)(iii) Mercon cannot recover for “nonproductive time” and under Clause 3.2.2(g)(vii), it cannot recover for “Remedial work attributable to defective work”. Whilst Mercon accepts that it cannot claim for nonproductive overtime, Bluewater says that this precludes a claim for non-productive time, whether overtime or otherwise, and Mercon should prove that the costs claimed do not include costs which cannot be recovered, such as re-work. Bluewater says that, at best, the timesheets show hours worked rather than entitlement and that, in practice, Mercon do not go any further than simply asserting an entitlement to be paid everything that is included on the timesheets.

In relation to the timesheets, Bluewater says that from an early stage Mercon had urged Bluewater to sign the timesheets even if they disputed Mercon’s entitlement to compensation and in later correspondence Bluewater recorded that the timesheets were being signed under protest because ASPO refused to work if they were not signed. Similarly Bluewater says that Mercon stated, as shown by exchanges in September and October 2008, that ASPO refused to reduce hours on timesheets when they should have done and these hours then formed part of the claims in invoices.

Bluewater refers to Mr de Geus’s evidence of the significant increase in integration costs. Originally €2,137,320 had been allowed, including €578,320 for yard improvement works, giving €1,559,000 for the integration works, with an incentive scheme anticipating that the core works could cost less than €900,000. Bluewater says that it is difficult to see how the sum now claimed can be justified as representing properly recoverable productive works, excluding re-work and non-reimbursable work.

In further support of this contention Bluewater refers to the “sense check” performed by the quantum experts in their First Joint Statement at paragraphs 2.16 to 2.22 where, amongst other things, they say that the industry norm for the integration welding work is 3,844 man-hours, against which Mercon have claimed some 7,312 hours for workers. The experts also agree that it is unusual to see scaffolder hours amount to approximately 60% of welder hours. Bluewater also refers to an internal Mercon email from Mr Van Den Brule to Mr de Jong of 13 September 2008 where he said: “the supervisor writing the time sheets has a fantasy over the number of men on the job and is a master in creating time sheets with inflated hours” and that the job was “flooded with men”. Bluewater also refers to documents in bundle K18 which contains the ASPO log book and, it says, shows work not being carried out efficiently and productively.

In relation to inefficiency, Bluewater refers to two issues. First there is the issue of the pre-heat treatment which was known about from early in the project. It says that whilst Mr Wickerhoff considered that there was adequate pre-heat treatment equipment, Mr Cookson, Mercon’s delay expert, did not and considered that this was the cause of delay. Bluewater refers to the ASPO log book from 4 September to 9 October 2008 which shows that problems were being caused by the lack of availability of pre-heat equipment.

Secondly there was an issue with the general slow progress of the necessary scaffolding, again as shown by the ASPO log book.

In relation to the timesheets for “assembly work” Bluewater notes that the provisional lump sum agreed between ASPO and Mercon for this work was €750,000 which was about 25% less than the costs of €931,325 (Assembly invoices 2008-12, 2008-13, 200813 and 2009-4) charged by ASPO based on their timesheets when it is not suggested that there were any significant changes to the work scope after the lump sum price was agreed with ASPO.

Bluewater also refers to paragraph 2.22 of the quantum experts’ First Joint Statement where they note that the supervision hours for foremen and supervisors, excluding Mercon Key Personnel and personnel covered by the preliminaries, are approximately 30% of the other recorded hours which is in the upper range of what might be expected. Bluewater says that this level of supervision is not consistent with the difficulties shown in the ASPO log book. In any event it refers to the quantum experts’ agreement that, if the court were to decide that the direct hours were over-claimed, then the supervision hours should reduce commensurately.

Bluewater relies on two other matters identified by the quantum experts. First, that the invoices include hours for “indirect labour” resources which do not feature in Attachment 5C2 of the Contract or Attachment 5C of the Mercon/ASPO Contract. The quantum experts have calculated the amount related to this issue in Appendix 2.4. The experts note that Attachment 5C2 does refer to resources such as “Operator” and “White collar worker” which might apply but Bluewater says that the claim is not advanced on this basis and such amounts should not be recovered. Secondly, the experts have also set out in Appendix 2.4 the adjustments necessary to reflect the fact that some supervisor hours appear to be claimed at the wrong rate, i.e. €25.00 per hour instead of €14.00 per hour as provided for in Attachment 5C2. The adjustments to be made to reflect this are also shown in Appendix 2.4.

In relation to Bluewater’s objection that there was not proper substantiation of the claim, Mercon says that the invoices are backed up by ASPO timesheets and that the timesheets were reviewed and approved by Mercon. Whilst Mercon encountered some difficulties with ASPO at an early stage of the project and some of the timesheets were signed under protest, Mercon says that it conducted a proper review and challenged ASPO where appropriate. It refers to a number of letters in late September/early October 2008 challenging claims by ASPO and says that the position then improved as confirmed by Mr Wickerhoff. It says that contrary to Mr Knibbe’s evidence, there was no question of Mercon signing off inflated timesheets.

Mercon also points out that the timesheets were forwarded to Bluewater and if Bluewater did not agree with the timesheets then it would refuse to sign them and Mr Wickerhoff would have to resolve the issue with Mr Knibbe of Bluewater as explained by Mr Wickerhoff. As confirmed by the quantum experts in their First Joint Statement, 95% of the timesheets were stamped and signed by Bluewater and Bluewater did not object to the timesheets and invoices at the time. Mercon also says that Bluewater later paid the invoices to ASPO in full without suggesting at that time that they were not properly substantiated.

So far as Bluewater’s position on invoices is concerned, Mercon refers to the quantum experts’ statement that they were unable to establish the basis for the amounts admitted or not admitted by Bluewater.

Mercon says that the quantum experts attempted a “sense-check” of the times on the time sheets but reached no conclusionbut said that the time claimed for supervision was “inside the upper end of range that we might expect”.

I am concerned that the process by which the timesheets were produced has meant that they are inaccurate. I consider that a 5% reduction in sums claimed is appropriate to take account of these inaccuracies. It is clear that there are proper concerns as to the general accuracy of the timesheets outside the 5% which applies where Bluewater has had the opportunity to review the timesheets. I consider that where Bluewater has been given the opportunity to review the time sheets then a signature is some evidence as to the accuracy of those documents as a record.

However where there has been no proper process of reviewing the timesheets at the time then a reduction up to 35% might be appropriate if there are other issues which lead to a lack of confidence in the timesheets. Necessarily the position is impressionistic based on consideration of the timesheets and the process by which they were produced and reviewed.

There is an issue as to Mercon’s re-allocation of amounts previously paid against invoices 2008-13, 2008-20 and 2008-22 to other invoices, in particular to pay 80% of Invoices 2008-53 and 2008-71, as it purported to do on 30 January 2009 whilst also making a further net payment of €130,680.20.

Mercon says that it paid ASPO 100% of invoice 2008-38 and 80% of invoices 2008-53 and 2008-71. Bluewater says that it paid ASPO 100% of invoices 2008-53 and 2008-71 under the Payment Contract and also invoice 2009-3 which Mercon accepts it did not pay. There is, therefore, an issue as to whether the parties paid ASPO 80% of invoices 2008-53 and 2008-71 twice.

If certain invoices were in fact paid twice then there are certain other invoices which were not paid at all. The central issue is whether Mercon was entitled to re-allocate the money paid in the way that it did.

To understand what happened on 30 January 2009 it is necessary to set out some matters by way of background. The Mercon/ASPO Contract divided the work on the substructure (“foundation”) into “fabrication” (item 1) and “assembly” (item 2). As set out in the payment Milestones in Attachment 5A, assembly involved “installation and welding of upper bracings”. Bluewater says that this assembly corresponded to the assembly work described in Attachment 5B of the Contract as part of “assembly/integration” in Astrakhan which was on a reimbursable basis. Bluewater says that bracings are “assembly” and that adding the Centre Column is “integration”.

As dealt with above, there was a change to the planned methodology for integration so that the diagonal bracings were assembled prior to the arrival of the Central Column rather than at the same time as the Central Column was integrated into the substructure but Mercon says that this did not affect the basis of payment as the bracings were always intended to be reimbursable work as part of “assembly/integration” rather than being within “supply/fabrication/erection”. Mercon says that “erection” is the work

Mercon says that the four invoices for the bracings (2008-13, 2008-20, 2008-22, 20094) relate to item 2 of the Mercon/ASPO scope of work, described as “assembly” and total €931,325 (€600,000 for Invoices 2008-13, 2008-20, 2008-22 and €331,325 for invoice 2009-4). Mercon says that it has not paid these invoices because of the reallocation affecting Invoices 2008-13, 2008-20, 2008-22 and, in any event, has not paid Invoice 2009-4. It only claims its mark-up in the sum of €74,506 (8% of €931,325) unless the re-allocation was not effective in which case Mercon claims reimbursement of the €600,000 it paid against Invoices 2008-13, 2008-20 and 2008-22.

Mercon says that items chargeable under the Contract on a reimbursable basis were generally invoiced by Mercon to Bluewater based on the actual hours worked by ASPO as set out in timesheets but in the case of the assembly work, Mercon provisionallyagreed to pay ASPO a lump sum of €750,000, subject to Bluewater accepting that agreement but that, absent such agreement, Mercon and ASPO would revert to “reimbursable base”. Mercon refers to the minutes of a meeting between Mercon and ASPO on 22 to 24 January 2008, which were incorporated into the Mercon/ASPO subcontract where the sum of €750,000 was included for “Assembly of SYMS foundation”.

Mercon paid ASPO €600,000, being 80% of the lump sum against ASPO invoices 2008-13, 2008-20 and 2008-22 between June and October 2008.

On 18 November 2008 Mercon wrote to ASPO to say that the lump sum had not been agreed between Bluewater and Mercon and then stated:

“Mercon therefore requests ASPO to provide full backup for the costs made regarding Assembly of SYMS foundation.

The already invoiced and paid amounts concerning PM2.1, PM2.2 and PM2.3 are prepayments and will be settled with the reimbursable basis.”

ASPO then provided timesheets for the work for which it had submitted invoices in a total amount of €931,325. These were forwarded to Bluewater on 2 January 2009 as part of VOR 264-M Rev3.

On 30 January 2009, following a telephone conversation, Mercon wrote to ASPO stating that Bluewater had not accepted those timesheets, attaching a schedule. Mercon said:

“In summary: we will pay today all due amounts deducting the €600.000 paid for scope element 2 (Assembly of SYMS foundation). As a result, scope element 2 is now considered unpaid and all invoices in attached overview are considered paid except for the remaining contractual 20% of invoices 36, 49, 50, 53, 69, 70 and 71.”

Mercon says that it was entitled to apply the payment in that way and ASPO could not accept the payment and then allocate it in a different way. It refers to the passage in the speech of Lord Macnaghten in The Mecca[1897] AC 286 at 293, where he said:

“When a debtor is making a payment to his creditor he may appropriate the money as he pleases, and the creditor must apply it accordingly. If the debtor does not make any appropriation at the time when he makes the payment the right of application devolves on the creditor.”

Bluewater says that when Mercon paid ASPO they paid the assembly invoices (200813, 2008-20 and 2008-22) and that no letter sent subsequently, such as the letter of 30 January 2009, can change that allocation. Bluewater also says that it paid the invoices which ASPO asserted were outstanding and ASPO did not make reference to the reallocation which indicates that ASPO did not accept the re-allocation.

It is evident that ASPO submitted Invoices 2008-13, 2008-20 and 2008-22 for the work which was covered by item 2 of the Mercon/ASPO scope of work, described as “assembly” and which totalled €600,000. Those invoices were paid against the lump sum of €750,000 included in the ASPO/Mercon Contract. That item reverted from being a lump sum to being reimbursable as confirmed by the letter of 18 November 2008. Invoice 2009-4 dated 28 January 2009 was then issued by ASPO in the sum of

Mercon says that this Invoice 2009-4 together with the other three original invoices related to the bracings. Having considered those invoices it is evident that what ASPO was doing by Invoice 2009-4 was to submit a final invoice for the work which had been part paid in Invoices 2008-13, 2008-20 and 2008-22. Those invoices had been paid for “Assembly of SYMS foundation” and Invoice 2009-3 was the final payment. If the lump sum of €750,000 had remained the figure in the final invoice would have been €150,000. It evidently became €331,325 on the basis that it was now to be paid on a reimbursable basis.

Mercon paid Invoices 2008-13, 2008-20 and 2008-22 for the work of “Assembly of SYMS foundation” and by doing so allocated those payments to that work. I do not consider that the change in the basis of valuation of the work meant that those sums were no longer allocated to that work. Indeed that was also the view of Mercon who made it clear in their letter of 18 November 2008 that the“already invoiced and paid amounts concerning PM2.1, PM2.2 and PM2.3”, that is Invoices 2008-13, 2008-20 and 2008-22, “are prepayments and will be settled with the reimbursable basis.” In other words those invoices remained allocated to that work but now were to be treated as prepayments for the sums to be paid on a reimbursable basis which was then finalised by Invoice 2009-4.

As a result, as Bluewater submits, I do not consider that Mercon was entitled to reallocate the sum of €600,000 as it sought to do on 30 January 2009 and that accordingly Invoices 2008-13, 2008-20 and 2008-22 were allocated to the “Assembly of SYMS foundation” and remained so. It follows that, as a result, Mercon did not on 30 January 2009 effect payment of 80% of Invoices 2008-53 and 2008-71 and so these invoices were not paid twice when Bluewater subsequently paid them. The position on payment

As explained above the quantum experts have allocated the Invoices into the following 13 categories which I have held to be the relevant “related activities” to which the mark-up in Attachment 5E of the Contract applies:

I shall consider mark-up after I have come to a conclusion on the total value of the sums due in respect of those invoices. The relevant mark-up provision in Attachment 5E is as follows:

There is an issue as to how the mark-up is to be applied. Bluewater says that the markup is part of the reimbursable charge and if there is nothing to reimburse then there is no charge to be made by way of mark-up. As a result Bluewater contends that any mark-up applies only to ASPO invoices that Mercon has actually paid.

Mercon says that the mark-up represents Mercon’s profit margin on the reimbursable works and there is nothing in the Contract that suggests that the earning of the profit is conditional on actual payment by Mercon to ASPO. In particular, Mercon says that Bluewater cannot avoid paying the mark-up and so deprive Mercon of its profit by simply paying ASPO direct, as it has done. Neither, it says, should it be deprived of its right to the mark-up if it had a good reason for not paying, such as that it was entitled to exercise a set-off.

I consider that the submissions of Mercon are correct. If Mercon carried out the work by itself or its sub-contractor and was entitled to be paid on a reimbursable basis then it was entitled to be paid that sum and the mark-up. If, however, Mercon failed to pay ASPO but Bluewater discharged Mercon’s liability to pay ASPO then that direct payment is equivalent to Bluewater paying Mercon and in turn Mercon paying ASPO. On this basis Mercon is entitled to receive the mark-up on payment made by Bluewater direct to ASPO. Thus while Mercon is not entitled to payment in respect of the invoices which it did not pay but which were paid by Bluewater, it is entitled to mark-up on those sums. Equally insofar as it arises, if Mercon was entitled to exercise a set-off then this would be equivalent to payment and it would also be entitled to the mark-up.

I now turn to consider the particular invoices.

Bluewater accepts that Mercon is entitled to reimbursement of this invoice for €567,520 in full. In relation to mark-up, this invoice comes into the band in Attachment 5E of over €500,000 which gives a mark-up of 4% so that Mercon is entitled to €22,700.80 as the mark-up.

The quantum experts calculate the total value of the invoices is €75,827.60. Mercon claims reimbursement of €62,592paid to ASPO plus an 8% mark-up of €5,007 on €62,592.The invoices relate to the integration of the Topsides in Astrakhan and Bluewater contends that Mercon is responsible for all costs consequent on thesplitting of the Topsides so disputes that any payment is due. Alternatively, Bluewater says that, as with the other ASPO invoices, the sum invoiced should be reduced by, at the very least, 5% to reflect the quantum expert’s agreement as to the inaccuracy of the ASPO timesheets.

As set out below, I do not consider that Mercon was responsible for the costs consequent on thesplitting of the Topsides. It follows that it was entitled to be reimbursed those sums.

Invoice 2008-38 was for €15,570.80 and was paid by Mercon. Mercon contended wrongly that it had paid 80% of invoices 2008-53 and 2008-71 on the basis of the reallocation which I have found to be ineffective. As a result the quantum experts say that Mercon has paid only €3,312.42 and €1,095.36 in respect of those invoices, a total of €4,407.78. Mercon has not paid 2009-3. Therefore the claim should only be for €19.978.58.

Bluewater has paid Invoices 2008-53 (€44,003.18), 2008-71 (€14,551.20) and 2009-3 (€1,704.42), making a total sum of €60,258.80. It follows that ASPO has been paid twice in relation to €4,407.78 in respects of invoices 2008-53 and 2008-71.

In the light of the concerns raised by the experts as to the accuracy of the invoices, I consider that the minimum 5% reduction proposed by Bluewater is a proper way to deal with these invoices. The sum paid by Mercon should be reduced by 5% from €19,978.58 to €18,979.65 and the overall invoiced sums reduced from €75,829.60 to €72,038.12.

In relation to the mark-up, the sum of €72,038.12 comes into the band in Attachment 5E of €50,000 to €500,000 which gives a mark-up of 6%, so that Mercon is entitled to €4,322.29 as the mark-up.

These invoices are intended to cover labour involved in the integration of the Central Column. Each invoice relates to one calendar month from August 2008 (Invoice 200825) through to January 2009 (Invoice 2009-6). The invoices are for €1,001,138.42 in total. Mercon claims reimbursement of €678,980 paid to ASPO in respect of the first four invoices and a mark-up of €80,090.

Mercon has paid ASPO €177,299.02 (2008-25); €20,491.21 (2008-36 as re-allocation was not valid); €16,172.03 (2008-49 as re-allocation was not valid); €13,879.99 (200869 as re-allocation was not valid); €nil (2009-1) and €nil (2009-6). That is a total sum of €227,842.24, as calculated by the quantum experts.

Bluewater has paid ASPO €272,209.92 (2008-36); €214,833.38 (2008-49); €184,384.50 (2008-69); €120,714.20 (2009-1) and €31,697.40 (2009-6). That is a total sum of €823,839.40. That means that ASPO has overall been overpaid as it has been paid twice for €20,491.21 (2008-36); €16,172.03 (2008-49) and €13,879.99 (2008-69), that is €50,543.23.

I consider that Mercon is entitled to €227,842.25 which it has paid less 5%, that is €216,450.13. Equally I consider that the proper amount which should have been paid overall is €1,001,138.42 less 5% that is €951,081.50 on which Mercon is entitled to 4% mark-up of €38,043.26.

This invoice for €118,807 relates to the fabrication and testing of a lifting link required to rotate the Central Column from horizontal to vertical for installation. It was required by Bluewater’s Marine Warranty Surveyor, LOC and carried out by ASPO and Mercon says that it is part of the reimbursable work. Mercon did not pay the invoice and is not seeking reimbursement but claims only its 8% mark-up of €9,504.

Bluewater says that, given the nature of this work it amounts to assembly work and falls into the category of those works which are duplicated by the ‘erection’ payment in the re-measure payment. The invoice in the sum of €118,807 was paid by Bluewater.

I consider that this falls within the integration work and therefore is part of the reimbursable work. The work was clearly needed to integrate the Central Column. I consider that Mercon is entitled to its mark-up based on €118,807, less 5%, that is €112,866.65, so that Mercon is entitled to 6% mark-up or €6,772.00.

This invoice is for €50,000. Mercon did not pay the invoice and is not seeking reimbursement but claims an 8% mark-up of €4,000. Bluewater says that the work is

Bluewater says that this invoice is for assembly work and falls into the category of those works which are duplicated by the ‘erection’ payment in the re-measure payment. Bluewater paid this invoice in the sum of €50,000. It also says that this invoice is for a round figure and it is not clear why it does not fall within the lump sum agreed between Mercon and ASPO for assembly work.

I consider that this work falls within the integration work. It is work which was required to integrate the Central Column and was temporary support for the bracings link to the Central Column.

I consider that Mercon is entitled to its mark-up based on €50,000, less 5%, that is €47,500.00 so that Mercon is entitled to 8% mark-up or €3,800.00.

The invoice is for €24,000for the hire of a floating crane for one day. Mercon paid the invoice and claims reimbursement plus an 8% mark-up of €1,920.

Bluewater disputes this invoice because it relates to integration of the Topsides and says that it does not form part of reimbursable work. This invoice relates to the provision of the Bogatyr III crane in support of Topsides integration/re-integration operations. The work performed by the crane is recorded in Work Completion Certificate No. 20, which confirms that the time spent on the operation (on 9 October 2008) was 1 hour 20 minutes. The invoice is based on the day rate of €24,000.00 for the crane as provided for in Attachment 5C2 of the Contract and Attachment 5C of ASPO’s sub-contract.

Bluewater submits that Mercon is not entitled to claim the full day rate for this crane unless it were established that the use of the crane for such a limited time was essential and that the use was maximised by co-ordinating work. In the absence of evidence to this effect the cost of the crane should be pro-rated.

As the quantum experts note that the only quantum issue is therefore whether it is correct to claim a full day rate when the crane was only required for 1 hour and 20 minutes of work. That is a matter for contract construction although factual evidence relating to arrangements for hire of the crane and/or whether the crane was deployed onto other work for the remainder of the day might also be relevant. Mercon provides no evidence in respect of these matters.

The question of whether this invoice is reimbursable depends first on responsibility for the integration of the Topsides. As set out above, I have held that Bluewater was responsible for this integration.

In terms of quantum, the rate is given as a daily rate in Attachment 5C2 rather than, as for many of the rates, an hourly rate. Whilst the time spent in operation may have been limited, I consider that the appropriate rate was a daily rate to include other operations before and after operation. On that basis, I do not consider this is an invoice to which

Invoices 2008-26 (€50,000.00) and 2008-48 (€118,912.00) are for a total of €168,912.00for the provision of pre-heating services by ASPO. Invoice 2008-26 is a €50,000.00 advance payment and invoice 2008-48 is a final invoice for work performed with the advance payment deducted. Mercon says it paid the invoices and claims reimbursement plus 8% mark-up of €13,512. Mercon has also claimed reimbursement for heating equipment rental.

Bluewater claims a discount on the invoices on the basis that some of the pre-heating work was included in the agreed measured work unit rates because it does not relate to the Central Column integration welds. Bluewater accepts €49,725.00 against these invoices and submits that, in the absence of proper proof by Mercon, the claim should be limited to that amount.

ASPO Invoices 2008-26 and 2008-48 are for the period 23 September to 7 November 2008 which is the time period when the Central Column was being integrated. The claim is based on working 24 hours a day, 7 days a week at a rate of €153.00 per hour. The quantum experts refer to an email from ASPO’s sub-contractor, Astroweld, which suggests that it quoted the rate of €153.00 per hour to ASPO for the pre-heating work. They consider that the rate is reasonable if it includes about 4 men plus 4 machines per shift.

There is an issue as to whether the parties paid ASPO sums against invoice 2008-48 twice. This issue arises out of Mercon’s letter dated 30 January 2009 as previously addressed. As result of my finding on re-allocation the amount paid by Mercon against Invoice 2008-48 is €56,484.38. Bluewater has paid €68,912.00, there is therefore an overlap of €6,484.38 against the overall invoice sum of €118,912.00.

I am not persuaded that the invoices include the use of preheating equipment for nonintegration welds. The relevant period was the period during which the Central Column integration welds were being carried out and, in the absence of evidence to the contrary, it is likely that the preheating was being used for those welds.

The timesheets are in Russian and, whilst they are signed by the person who prepared them, there are no Mercon or Bluewater signatures on the timesheets which the experts have reviewed. That would suggest that either they were not submitted or not reviewed by either Mercon or Bluewater. In addition the timesheets do not identify the resources being used and there is no evidence to support the assumptions that the quantum experts make as to resources in this respect.

Mercon has paid €50,000.00 and €56,484.38, a total of €106,484.38. Given the uncertainties with the timesheets in this case I consider that the claims for each of the invoices should be reduced by 35%. This means that Mercon should only have paid €69,214.85 and invoiced sums reduced from €50,000 and €118,912.00, totalling €168,912.00 to €109,792.80. Mercon is entitled to a mark-up based on €168,912.00, less 35% or €109,792.80, giving 6% which is €6,587.57.

The claim relates to the provision of two pre-heating units to ASPO because ASPO or its sub-contractor was unable to source enough units locally. The claim is for 7 weeks rental for each unit during October and November 2008. Mercon originally valued the units at €153.00 per hour, the same rate as charged by ASPO for pre-heating services.

The experts have seen timesheets signed by Mercon’s Mr Wickerhoff and Bluewater’s Mr Gardiner with “Review” circled on the Bluewater stamp and which support the claimed number of weeks for the two units. The experts agree that the rate of €153.00 per hour is not appropriate for the supply-only of pre-heating equipment. They have agreed that Mercon’s claim for heating equipment rental should be reduced to €16,786using appropriate rental rates. They have established a rate of €1,199.00 per week exclusive of mark-up using the rate charged by Mercon’s sub-contractor, Delta Heat Services, for equipment supply in Gorinchem as a basis, with a fair allowance added for transportation and local attendance. The expert’s valuation assumes that the equipment supplied by Mercon to ASPO is comparable to that used by Delta Heat Services in Gorinchem and that the operation of the equipment is included elsewhere.

Mercon agrees in its written opening submissions that it will limit its claim to this amount as assessed by the experts for this aspect of the preheating.

Bluewater says that Mercon has not provided any details of the costs incurred to provide the equipment Clause 4.1 of Section 5 states that Mercon “Shall provide the relevant original invoices in support of any request for compensation”. In the absence of an invoice for rental costs Bluewater says that the equipment may have been Mercon’s own equipment brought from Holland or which it did not incur any rental charge. It also says that transport is deemed to be included in the uplift rate under Clause 4.1 of Section 5.

I consider that the rate established by the experts is a fair rate subject to the point raised by Bluewater as to transport/attendance. The mark-up would include for transport/attendance as is made clear by the non-exclusive list of matters in Clause 4.1 of Section 5. I do not consider that the absence of an invoice should affect the entitlement to claim and, even if the equipment were to be Mercon’s equipment it would be entitled to be paid.

The rate includes 10% for transport/attendance and I therefore consider the rate should be reduced to €1,090.00 so that the overall sum becomes €15,260.00. In terms of markup Mercon is entitled to 8% or €1,220.80.

The first two invoices are for a total of €6,799 (€4,619.00 and €2,180.00). Mercon says it paid these two invoices in full and claims reimbursement plus an 8% mark-up of €544. Bluewater disputes part of the invoices because they relate to integration of the Topsides.

Both invoices relate to the provision of cranes for various activities recorded in ASPO Work Completion Certificates. The certificates support the claimed hours and the rates used in the invoice reflect those provided for within Attachment 5C2 of the Contract and Attachment 5C of the ASPO sub-contract.

Invoice 2008-57 for €4,619.00 relates to 8 certificates (No 23 to 31). Bluewater admits a total of €901.00 against this invoice, which reflects the costs associated with certificates 30 and 31. It says that all of the other certificates are associated with the integration/re-integration of the Topsides. Bluewater has paid €4,619.00 against this invoice and because Mercon was not allowed to reallocate it has paid only €434.63.

Invoice 2008-63 for €2,180.00 relates to 7 certificates (No 32, 33 and 35 to 39). All are signed by a member of Mercon’s personnel, with No. 33 and 37 to 39 being signed by a member of Bluewater’s personnel with “Review” circled on the Bluewater stamp. Bluewater says that if the invoices are not signed by Bluewater’s personnel Mercon should not recover for that item and that the signed invoices should, in any event, be reduced by 5% and discounted further given the issues with timesheets and hours spent. Bluewater has paid €2,180.00 against this invoice and because Mercon was not allowed to reallocate it has paid only €205.13. Bluewater admits a total of €1809.00 against this invoice.

Invoice 2009-5 has been paid by Bluewater in the sum of €389.00. Overall there has been an overpayment to ASPO of €639.76 (€434.63 and €205.13) based on the payments made in respect of Invoices 2008-57 and 2008-63.

I have dealt below with the question of integration of the Topsides and held that Bluewater is responsible for this.

On that basis, I consider that Mercon is entitled to be paid €639.76 (€434.63 and €205.13) based on the sums which the quantum experts have assessed as having been paid following the invalid re-allocation. So far as discount is concerned I consider that the 5% discount should not apply to the sum claimed in this case because of use of crane hours which are likely to be more accurate. On that basis Mercon is entitled to mark-up on €7,188.00 (€4,619.00, €2,180.00 and €389.00) which is 10% or €718.80.

The invoices total €25,628 and are for the costs of ensuring that welders were properly qualified. Mercon paid the invoices in full and claims reimbursement plus an 8% markup of €2,021. No issue of duplication arises. The quantum experts in their First Joint Statement agree that it is normal practice in the offshore fabrication industry for welders to be required to demonstrate that they are capable of performing the required standard of welding before being engaged and Mercon says that this was also an express requirement of Bluewater’s welding specification where paragraph 4.3 provided: “All welders and welding operators shall [be] successfully qualified in accordance with … and certified by an independent inspection authority.”

Bluewater disputes the claim on the basis that the time rates at Attachment 5C2 of the Contract are inclusive of “personnel preparation (training auxiliary personnel)” and because the rates assume that the welders are qualified. Bluewater also refers to Clause 9.2 of Section 2 of the Contract which requires Mercon to ensure that all personnel are “competent, properly qualified, skilled and experienced in accordance with good industry practice” and it says that welders who require to be qualified do not meet this requirement. Further, Bluewater refers to the Structural Welding and Non-Destructive Examination Specification which provides at paragraph 2.1.5 that: “All welders and welding machine operators engaged on structural welding shall be qualified prior to commencement of the work in accordance with AWS D1.1 and the requirements of this specification” Bluewater says that the requirement to be qualified “prior to the commencement of the works” means that qualification cannot be part of the works and recoverable as such. Additionally, Bluewater refers to the provision in Clause 3.2.2(g) of Section 5 that Mercon cannot recover for non-productive time and says that the claim is not recoverable on this basis.

Mercon says that these costs are not the costs of preparing or training unqualified welders but the costs of verifying their qualifications in accordance with normal practice and with Bluewater’s Welding Specification.

Bluewater also refers to paragraph 2.62 of the quantum experts’ First Joint Statement where they agreed that Invoice 2008-15 for €16,686.00 paid by Mercon had no supporting information and did not give any indication of the identity of the welders, number of welders being qualified, or the weld types. Bluewater says that Invoice 2008-43 for €8942.00 paid by Mercon did not identify the welders being qualified or the weld types, but did indicate that it related to the cost of qualifying 10 welders. Bluewater says that as a result Mercon has failed to prove its case that the costs were properly incurred in relation reimbursable work.